Capital flows and stock price volatility: Evidence from Hong Kong

This paper investigates both the short-run dynamics and the long-run co-movement of stock prices, capital flows and the real interest rates in Hong Kong. By using the Johansen multivariate cointegration technique, this paper finds that there are two cointegration vectors among the variables. In other words, the results show that the three variables in Hong Kong are moving together. This long-run relationship implies that even the stock market is efficient in the short-run. Its long-run movement can, however, be predicted by the activities of the capital market.This paper benefited greatly from the comments of anonymous referees. All remaining errors are ours alone.     

The relationships among stock indices on asian-pacific exchanges

This article investigates the systematic covariations between stock prices in nine Asian and Pacific countries. The data used were daily closing prices of major indices on exchanges located in Tokyo, Australia, New Zealand, Hong Kong, Singapore, Seoul, Taipei, Manila, and Bangkok from 4 January, 1980 through 31 March, 1984. Using spectral analysis, the results indicate that most prices move simultaneously, even in the context of hourly fluctuations.     

Covered interest arbitrage with transaction costs: An evidence from the Hong Kong foreign exchange market

This paper deals with the effects of transaction costs on the efficacy of covered and one-way interest arbitrage under the linked exchange rate system in the Hong Kong foreign exchange market. First, we examine the arbitrage opportunities in the swap market and in domestic and foreign securities markets. Second, we measure the profitability of covered interest arbitrage and one-way arbitrage. Empirical findings have shown that allowing for transaction costs, covered interest arbitrage seems to entail less unexploited opportunities for profit. However, there exists a great deal of unexploited profit opportunities in one-way arbitrage in the Hong Kong financial market.We are grateful to two anonymous referees and the editor for their helpful comments on an earlier version of this paper.     

Price changes and trading volume relationship in the Hong Kong stock market

Studies on the relationship between price changes and trading volume can provide insight into the structure of the financial market. In this paper, we will study the above topic and concentrate on the stock market of Hong Kong. The correlation between price changes and trading volume as well as that between the magnitude of price changes and trading volume will be examined. We will also check the asymmetry of the price changes and volume relationship. Moreover, we will investigate the relationship between the variance of return and trading volume. Finally, the Granger causality test of price changes and volume will be performed.     

A cointegration analysis of the Asian dollar and Eurodollar interest rate transmission mechanism

The transmission mechanism between the Asian dollar and Eurodollar markets is investigated for the period 1981–1989 using a cointegration analysis and error correction model. Results indicate the absence of reverse causality in the Asian dollar market throughout the 1980s. In the Eurodollar market, reverse causality exists in the first half, but disappears in the second half of the decade. Both markets are evolving into rapid incorporation of prior interest rate information into current rates. These results are likely to be due to reduced market regulation, expansion of futures trading, more sophisticated telecommunications and 24-hour trading practices.The authors wish to thank Zoltan Acs and Elizabeth Cooperman for helpful comments and suggestions. Invaluable assistance in data collection and entry was provided by Brett Salazar. Any errors remain our own.     

Exchange rate regimes and import pricing

To what extent exchange rate variations are passed through into import prices has been on the research agenda over the past decade. Research efforts have focused on the very existence of pricing to market and on differences in pass-through behaviour between industries. Much less research has been devoted to the factors behind variations in pass-through behaviour within industries, and to changes in this behaviour over time. The change of exchange rate regime in Sweden in 1992 is used here to illustrate how the interaction between alternative exchange rate regimes, fixed and floating, and pricing behaviour affects pass-through behaviour. The study concentrates on the passenger car industry.     

Do Asian stock market prices follow martingales? Evidence from spectral shape tests

This paper examines the martingale hypothesis for five Asian stock markets using the spectral shape tests of Durlauf (1991). Unlike the variance ratio test employed in previous studies (eg, Panet al, 1991), the spectral shape tests are consistent againstall stationary alternatives to the martingale null.The spectral shape tests were applied to daily and weekly returns on the stock indices of Thailand, Hong Kong, Korea, Malaysia and Taiwan over a period of 17 years. The results show that the martingale null is rejected for most markets. There is some evidence that the rejections may be due to low frequency or long memory influences.The authors are lecturers, Department of Finance and Banking, National University of Singapore. This paper was presented at the Third International Conference on Asian-Pacific Financial Markets, September 9–11, 1993 in Singapore. We have benefited greatly from the comments of Y K Tse and other conference participants.     

Seasonality in the Malaysian stock market

Previous studies have found the existence of a January effect in many Western countries. In Malaysia, local stock market commentators often talk of a Chinese New Year rally which has not been tested. This study examines empirically the existence of seasonality according to the Gregorian, Chinese and Muslim calendars in the Malaysian-stock market. The results suggest that in Malaysia, when monthly returns are measured according to different types of calendar, evidence in support of seasonality is found. In the main, a January effect, Chinese New Year effect and anAidilfitri effect are found. The Muslim calendar time effect is less widespread than the Chinese New Year and January effect. Possible reasons for the existence of the various types of seasonality, both economic and non-economic, are suggested. In a separate part of the study, a Chinese New Year effect is also found in the Singapore and Hong Kong stock markets.Ms Wong Ping Ling is a financial analyst of Dynaquest Sdn Bhd, a financial information services company in Penang, Malaysia. Dr Neoh Soon Kean is a lecturer of Science University of Malaysia, Penang. Dr Lee Kok Huat is an Associate Professor of University of Malaya. Dr Gregory Thong Tin Sin is an Associate Professor of Nanyang Technological Institute. This paper is mainly an extract from a MBA dissertation submitted to the University of Malaya. The authors would like to thank Ms Ng Poh Wah for her assistance in preparing this paper and Dynaquest Sdn Bhd for providing the facilities.     

Portfolio diversification into the Asia-Pacific capital markets: A currency perspective

This paper examines the potential benefits of international investment in the Asia-Pacific capital markets. Using the viewpoints of U.S., Hong Kong and Japanese investors, the study shows that the returns from international investment within the region are more dependent upon the state of exchange rate changes. For the Hong Kong investors, despite the adopted pegged-rate between the Hong Kong dollar and U.S. dollar, the pattern of exchange returns from investing in the region resembles that of Japan rather than that of the U.S.     

An Analysis of the Deposit-taking Market of Hong Kong

This paper analyzes the deposit-takingmarket in Hong Kong prior to the deregulation ofinterest rates in 1994. We argue that bankingregulations, in the forms of branching restrictionsand interest-rate ceilings, had created amonopsonistic market for short-term bank deposits. Asa result, banks in Hong Kong had earned asubstantially wider interest-rate margin than banks inother Asia-Pacific countries and the United States. We provide procedures to estimate the economicsignificance of the foregone interest and find themonopsonistic rent to be in the order of 1% of theGross Domestic Product of Hong Kong for the period1987 through 1994.     

Multiple agency perspective,family control,and private information abuse in an emerging economy

Using a comprehensive sample of listed companies in Hong Kong this paper investigates how family control affects private information abuses and firm performance in emerging economies. We combine research on stock market microstructure with more recent studies of multiple agency perspectives and argue that family ownership and control over the board increases the risk of private information abuse. This, in turn, has a negative impact on stock market performance. Family control is associated with an incentive to distort information disclosure to minority shareholders and obtain private benefits of control. However, the multiple agency roles of controlling families may have different governance properties in terms of investors’ perceptions of private information abuse. These findings contribute to our understanding of the conflicting evidence on the governance role of family control within a multiple agency perspective.     

Stock portfolio excess returns and macroeconomic variables: An empirical analysis of the singapore stock market

Economic agents use information in forming their expectations of future returns from holding stock securities. These securities should be priced to reflect the risks due to economywide fluctuations. The information is updated given the realisations of the factors, which are taken as unobservable but that affect the utility of possibly risk-averse agents. Stock portfolio excess returns (or risk premiums) are analysed empirically within the framework of the Dynamic Factor Model which allows for serial correlation in the factors. Over the sample period 1975:1 to 1986 (January 1975 to June 1986), a single factor can parsimoniously represent ten stock portfolio excess returns. In the framework of the Dymimic model, causality tests for several macroeconomic variables are carried out to ascertain if these variables are correlated with the stock portfolio excess returns. The finding that the excess returns are correlated with the variables that enter the causal equations with a lag is consistent with the conjecture that these variables are used by economic agents in forming their expectations of future treasury security excess returns or risk premiums. Variables possibly related to real activities in the economy are not rejected as causal variables.The research was carried out under the National University of Singapore research grant RP880014. We would like to thank an anonymous referee for his very helpful comments.     

Market Efficiency and Return Statistics: Evidence from Real Estate and Stock Markets Using a Present-Value Approach

This paper develops a methodology to identify asset price response to news in the framework of the Campbell–Shiller log-linear present-value equation. We further show that a slow price adjustment in real estate markets not only induces a high serial autocorrelation in excess returns, but also dampens the return volatility and the correlation with excess returns in other asset markets. Using Hong Kong real estate and stock market data, we find that the quarterly real estate price assimilates only about half the effect of market news, whereas the quarterly stock price incorporates the news fully. Our analysis identifies a cumulative price adjustment that recovers lost information in real estate returns due to market inefficiency and thereby restores the real estate return volatility and the correlation between real estate and stock markets.     

Liquidity, Return and Order-Flow Linkages Between REITs and the Stock Market

This article represents the first exploration of liquidity and order flow spillovers across New York Stock Exchange stocks and real estate investment trusts (REITs). Impulse response functions and Granger causality tests indicate the existence of persistent liquidity spillovers running from REITs to non-REITs. Specifically, REIT liquidity indicators are forecastable from non-REIT ones, at both daily and monthly horizons. I also provide evidence of a liquidity premium inherent in REIT returns. While REIT prices appear to be set efficiently in that neither REIT nor non-REIT order flows forecast REIT returns, I find that order flows and returns in the stock market negatively forecast REIT order flows. This result is consistent with the notion that real estate markets are viewed as substitute investments for the stock market, which causes down-moves in the stock market to increase money flows to the REIT market.     

When is it rational for firms to acquire silent interests in rivals?

The cartelizing effects of firms' shareholding in rivals have been well established theoretically, yet empirical instances of such are rate to nonexistent. It is argued here that if the stock market is efficient in the sense that share prices reflect post-share trading product market equilibria, then acquiring shares in rivals is not subgame perfect for Cournot oligopolies but is subgame perfect for some Bertrand oligopolies. Acquiring a silent interest in a rival is an example of the “fat cat ploy”. That the stock market is not a cartel maker is consistent with Cournot having wide empirical application, but not with Bertrand.     

Mergers — What the “Grimm” data tell us

The aggregate level of U.S. merger activity may be influenced by expectations concerning future economic growth (as proxied by stock prices), current economic conditions, and/or interest rates. This paper applies regression analysis to the W. T. Grimm annual merger data from 1963–1986 to determine which of these determinants are significant. It also examines whether the government's antitrust stance influences merger activity. The results indicate that current economic conditions are a significant determinant, while interest rates and the government's antitrust stance appear to have no effect on mergers. The result concerning stock prices was inconclusive and will require more analysis.The author would like to thank an anonymous referee for many helpful comments. As always, the author accepts sole responsibility for any errors or omissions.     

Networks, Transactions, and Resources: Hong Kong Trading Companies' Strategic Position in the China Market

The author draws on network perspective, transaction cost perspective and resource-based perspective to analyze Hong Kong trading companies' strategic position in Western manufacturers' exports into China. The study examines the strategic position at different stages of market entry and from the views of both manufacturers and trading companies. The discussion shows that under certain conditions Hong Kong trading companies will enjoy and maintain important position in the market.     

Expatriate management succession in foreign business subsidiaries

In most foreign subsidiaries, expatriate top managers are routinely exchanged after a certain period of time. The handing over procedure between the expatriate predecessor manager and his successor has attracted very little academic research. A proper succession ensures continuity and the accumulation of experience in the foreign operation. Our sample includes expatriate business managers employed by companies from Australia, Germany, Holland and Italy assigned to Hong Kong. A mail questionnaire is used to collect the information, and this investigation is a direct extension of a previous exploratory study undertaken by one of the authors. The main issue in this paper is to investigate the duration of the overlap period at the foreign subsidiary. This dependent variable is related to three sets of independent variables: personal, corporate and subsidiary characteristics.Dr Jan Selmer is Reader and Head, Department of Management, and Mrs Vivienne Luk is Senior Lecturer and BBA (Hons.) Degree Course Leader, both at the School of Business, Hong Kong Baptist University. The authors gratefully acknowledge the helpful comments and suggestions of two anonymous reviewers as well as the Chief Editor on earlier versions of this paper. The research was supported by a Faculty Research Grant from Hong Kong Baptist University.     

Disney’s successful adaptation in Hong Kong: A glocalization perspective

This paper applies the principles of glocalization theory to Disney’s successful adaptation in Hong Kong. Glocalization refers to the interface of the global and the local. After Hong Kong Disneyland’s lack of success within a year of its opening in 2005, Disney executives attempted to cater to the local Chinese context. From a glocalization perspective, four major changes were made: (1) reduction of prices; (2) adaptation to local visitors’ customs; (3) change of décors and settings; and (4) adaptation of labor practices. Ever since, Hong Kong Disneyland has proved successful: park attendance and revenues from growth have increased.