Aberrant investor participation amid substantial price swings: high-frequency evidence of magnet-repellent effect from Malaysia

Price limits have skirted controversy since inception. Regulators claim limits curb volatility, allay stressed markets, and encourage reflection on information to trade rationally. Opponents contend saying limits delay the inevitable by postponing volatility, deferring equilibrium price discovery, and obtrude investors’ trading plans. While these undesired effects are all ex-post in nature, some argue that limits – by very existence – threaten to invite trading activities towards themselves and govern trade-flow such that the limit’s prophecy is fulfilled. This is known as magnet effect. Theoretical development of this ex-ante effect has been in hibernation since the 1990s. Thus, empirical attempts have been made to test its existence – mostly in East-Asian exchanges with tight limits. Bursa Malaysia, however, defends its ±30% limit for ~30 years based on internal (unpublished) studies. This paper employs a battery of tests to examine the existence and magnitude of magnet effect and – its counterpart – repellent effect in Malaysia. Our findings suggest a weak form of magnet effect and comparable degrees of repellent effect. Moreover, we report price acceleration beyond a threshold point unsupported by order aggression or volume support necessary to constitute a magnet effect. We discuss policy import of our findings and recommend future research avenues worthy of pursuit. Price limits’ opponents argue that limits can threaten to invite trading activities towards themselves such that the limit’s prophecy is fulfilled. Existence of this phenomenon—the magnet effect—has been tested mostly in exchanges with tight limits. This paper employs a battery of tests to examine the existence and magnitude of magnet effect in Bursa Malaysia, which employs a wide price limit. Our findings suggest a weak form of magnet effect and comparable degrees of repellent effect. Moreover, we report price acceleration beyond a threshold point unsupported by order aggression or volume support necessary to constitute magnet effect.     

Exploring the effects of capital mobility on the saving–investment nexus: evidence from Icelandic historical data

We explore the effects of capital mobility on the relationship between saving and investment using historical data for Iceland. First, we analyse the saving–investment (S-I) correlation for the period of restricted capital mobility using data from 1960 and 1994. We then add a period of free capital mobility between 1994 and 2008 and estimate the correlation for the period 1960–2008. Finally, we extend our analysis to the 2008 to 2016 period, when capital controls were imposed in response to the crisis. Institutions matter: We find institutional changes, in particular, Iceland’s entry into the European Single Market in 1994, coincided with a fall in the long-run correlation between saving and investment. However, the correlation weakens further when we include the post-crisis regime of capital controls, suggesting a weaker relationship between savings and investment in this regime. We discuss the possible reasons for this pattern and also the implications of our findings for post-crisis policy in small open economies.     

Los nietos de Keynes y los trabajadores de Marx en las plataformas digitales. Por qué el trabajo humano todavía es importante

El miedo a la automatización y al «futuro del trabajo», a la superfluidad de los trabajadores y del ser humano en general, se basa en ideas recurrentes sobre la tecnología, el trabajo y el valor económico. El debate se remonta a destacados pensadores como Karl Marx y John Maynard Keynes. Para entender el momento actual, los autores revisan este debate en relación con la historia del capitalismo. Desde una perspectiva centrada en el trabajo y la tecnología, examinan las formas ocultas de creación de valor en la economía actual y las lagunas del debate histórico, y esbozan varias situaciones hipotéticas de cara al futuro.     

Corruption control,shadow economy and income inequality: Evidence from Asia

Developing countries often suffer from high corruption, high income inequality and poor institutional arrangements that give rise to large shadow economies. Earlier evidence shows that shadow economies moderate the negative effects of corruption on income inequality in highly unequal South American countries. For Asia, we show that the persistence of shadow economies raises inequality even if corruption control is strong. Supported by static and dynamic panel data analyses of 21 countries in Asia between 1995 and 2015, we show that in order to combat rising inequality, corruption control must be complemented by the ability to translate secondary and tertiary school enrolment into industrial and, more importantly, service sector jobs. Countries with low corruption but high inequality can reduce inequality by committing to higher public consumption expenditures. Further, combining greater trade openness with low corruption lowers inequality, except for countries in South Asia.     

Stock market signals and consequences of securities class actions lawsuits: a microstructure perspective

Review of Quantitative Finance and Accounting - We perform a microstructure analysis of trading activities pre- and post-class period end-dates of securities class action lawsuits. We posit that...     

The Effect of Market Structure on Banks’ Profitability and Stability: Evidence from ASEAN-5 Countries

This paper analyses the effect of market structure on profitability and stability using the sample of 130 commercial banks in ASEAN-5 countries (Indonesia, Malaysia, Philippines, Singapore and Thailand) over the period from 2001 to 2013. More specifically, this study investigates the relevance of the structure conduct performance (SCP) and the relative market power (RMP) hypotheses. This paper also examines the relevance of ‘concentration-stability’ and ‘concentration-fragility’ hypotheses in the case of ASEAN-5 banking. In doing so, we control for the effect of bank-specific and country-specific factors. Empirical results based on system-generalised method of moments (GMM) analyses support the RMP hypothesis but fail to support the SCP hypothesis. We find that concentration stabilizes the banking sector. Evidence also highlights the importance of bank-specific controls related to capitalization and costs on profitability and stability. Implications for policy-makers are addressed.     

Does protectionism harm unskilled workers?

In this paper we construct a general equilibrium model of trade and illustrate that return to unskilled labor may be negatively correlated with the price of product it produces. Specifically, we show that greater protection for the intermediate good that uses “unskilled” labor can reduce the unskilled wages. This result has interesting political‐economic implications.     

Predictions of growth in U.S. corporate profits: Asymmetric vs. symmetric loss

This study evaluates the Federal Reserve and private forecasts of growth in corporate profits for 1984-2004. These forecasts are both rational and directionally accurate but suggest different loss structures. The Federal Reserve forecasts tend to significantly under-predict and imply asymmetric loss. The private forecasts, however, are free of such bias, suggesting symmetric loss. Given that the Federal Reserve forecasts are made to help with policymaking, our findings point to the Fed's cautiousness not to incorrectly predict the downward moves in growth in corporate profits. The private forecasts are made by experts who (with a strong profit-motivated interest) attempt to generate financial gain and thus predict the upward moves as accurately as the downward moves.     

An evaluation of private forecasts of interest rate targets in Brazil

This study shows that the private sector accurately predicts short-term interest rate targets set by the Brazilian monetary authorities. With increased transparency under inflation targeting, such evidence suggests that the public perceives the central bank as credible.