Illusory profitability of technical analysis in emerging foreign exchange markets

We conduct an extensive examination of the profitability of technical analysis in ten emerging foreign exchange markets. Studying 25,988 trading strategies for emerging foreign exchange markets, we find that the best rules can sometimes generate an annual mean excess return of more than 30%. Based on standard tests, we find hundreds to thousands of seemingly significant profitable strategies. However, almost all of these profits vanish once the data snooping bias is taken into account. Overall, we show that the profitability of technical analysis is illusory.     

Bank competition,financial development and macroeconomic stability: Empirical evidence from emerging economies

In this study, we investigate the potential contribution of bank competition to macroeconomic stability, and the interactive role of financial development. We classify macroeconomic stability into economic and financial stability. Economic stability is represented by the volatility of actual and unexpected output growth, whereas financial stability is assessed by the aggregate Z-score and volatility of the private credit-to-gross domestic product ratio. We employ two structural and two non-structural measures of bank competition in our analysis. Applying a two-step dynamic panel system (GMM) to macroeconomic data from 48 developing nations from 1999 to 2018, we find a bell-shaped relationship between bank competition and macroeconomic stability. The findings imply that a higher level of bank competition promotes macroeconomic stability by reducing output growth volatility, fluctuations in private credit, and the probability of bank default. There is an optimal level of bank competition beyond which it may foster economic and financial instability. Moreover, financial development enhances bank competition’s positive impact on macroeconomic stability.     

Estimating the proportion of informed and speculative traders in financial markets: evidence from exchange rate

Journal of Economic Interaction and Coordination - We study the Glosten–Milgrom model and estimate the proportion of informed traders or speculators using bid–ask spread and price...     

Linkages between emerging and developed equity markets: Empirical evidence in the PMG framework

This paper empirically investigates the international equity market causal links between Central and South-Eastern Europe, on the one hand, and developed countries (Western Europe and the United States), on the other hand, over the monthly sample period spanning from October 2000 to September 2012. Unlike previous studies, we use the pooled mean group (PMG) approach of Pesaran et al. (1999), which is suitable to estimate dynamic heterogeneous panels to draw reliable conclusions. After cointegration is found between the stock markets of interest, the PMG estimates show evidence of each market's sensitivity to the fluctuations of the other markets over both the short- and long-run, supporting the feedback hypothesis. The impact of developed markets on emerging markets is more important than that of emerging markets on developed markets and the bidirectional impact is higher between emerging and Western European markets than between these emerging markets and the United States. These conclusions are robust to an alternative specification, which supports the view that the stock markets are closely interlinked. The findings are of great interest and have important implications for policy makers, investors, and practitioners.     

Real exchange rate behaviour: evidence from black markets

The behaviour of real exchange rates (relative to the US dollar) is examined using monthly data obtained from the black markets for foreign exchange of eight Asian developing countries. The data span is 31 years. The black market real exchange rates do not show excess volatility during the recent float which is in sharp contrast to the results reported elsewhere. Unit root tests in heterogeneous panels and variance ratio tests confirm their stationarity. Thus, we find support for PPP but not for the ‘survivorship’ bias (Froot and Rogoff, 1995 ). There is little evidence of segmented trends. Issues raised by Rogoff ( 1996 )—of whether PPP would hold across countries with differing growth experience—and Lothian and Taylor ( 1996 )—of whether the degree of relative price volatility may bias results in favour of mean reverting real exchange rates—are addressed. Copyright © 2000 John Wiley & Sons, Ltd.     

Credit allocation and the financial crisis: evidence from Spanish companies

The worldwide financial crisis of 2007–2008 raised serious concerns about the soundness of banks’ activities and about the extent to which banking regulation should supervise banks’ investment decisions. We contribute to this topic by examining the Spanish case, which has been emblematic of the bubble and burst dynamics in the credit market. In particular, we study the allocation of bank credit among Spanish companies from 1999 to 2014, showing that larger companies accumulated greater amounts of bank loans per unit of total assets, thus leading to a notable concentration. We also find that, during the Spanish boom period, bank loans shifted from the manufacturing to the construction industry, and in particular to the largest companies of the latter sector. This happened in spite of the high leverage of large construction firms, which was increasing also due to their growing debt. We argue that the higher operating benefits, reflecting the increase of the housing price during the boom period, overvalued construction firms as potential borrowers. The bankruptcy of several large construction companies during the Spanish crisis supports the need for monitoring and regulation, to avoid an excessive concentration of bank credit to a few large companies, especially if they belong to a specific sector.

     

A multivariate GARCH in mean approach to testing uncovered interest parity: evidence from Asia-Pacific foreign exchange markets

The existence of time-varying risk premia in deviations from uncovered interest parity (UIP) is investigated based on a conditional capital asset pricing model (CAPM) using data from four Asia-Pacific foreign exchange markets. A parsimonious multivariate generalized autoregressive conditional heteroskedasticity in mean (GARCH-M) parameterization is employed to model the conditional covariance matrix of excess returns. The empirical results indicate that when each currency is estimated separately with an univariate GARCH-M parameterization, no evidence of time-varying risk premia is found except Malaysian ringgit. However, when all currencies are estimated simultaneously with the multivariate GARCH-M parameterization, strong evidence of time-varying risk premia is detected. As a result, the evidence supports the idea that deviations from UIP are due to a risk premium and not to irrationality among market participants. In addition, the empirical evidence found in this study points out that simply modeling the conditional second moments is not sufficient enough to explain the dynamics of the risk premia. A time-varying price of risk is still needed in addition to the conditional volatility. Finally, significant asymmetric world market volatility shocks are found in Asia-Pacific foreign exchange markets.     

Debt dependence and corporate performance in a financial crisis: evidence from the sub-prime mortgage crisis

This study examines the effect of corporate debt dependence on the differential impact of the sub-prime mortgage crisis on corporate performance. We find that the higher the debt dependence the greater the decrease in corporate performance from the pre-crisis to the crisis period. For high-debt firms, we find that the higher the new debt borrowed during the crisis period, the lower the corporate performance. However, we find no significant relation between new debt borrowed and corporate performance for low debt firms during the crisis period.     

The global financial crisis: Lessons for European integration

The EU's limited fiscal capacity has proven to be the most critical constraint in responding to the global financial crisis in a coordinated manner. The EU does not have enough resources to rescue the troubled financial institutions and member states. This leads to a nationalization of rescue operations, which undermines the Single European Market and requires IMF involvement with respect to member states in distress. The EU must also complete the lacking elements of the Single European Market architecture (such as European financial supervision) and help in strengthening global policy and regulatory coordination.     

Gradual financial integration and macroeconomic fluctuations in emerging market economies: evidence from China

Journal of Economic Interaction and Coordination - This paper extends the conventional DSGE literature by developing a New Keynesian DSGE model featuring imperfect financial markets with various...     

Central bank transparency and financial market expectations: The case of emerging markets

In this paper, we study how central bank transparency influences the formation of money market expectations in emerging markets. The sample covers 25 countries for the period from January 1998 to December 2009. We find, first, that transparency reduces the bias (the difference between the money market rate and the weighted expected target rate over the contract period) in money market expectations. The effect is larger for countries with no exchange rate peg and countries with low income. Second, an intermediate level of transparency is found to have the most favorable influence on money market expectations: neither complete secrecy nor complete transparency is optimal. Finally, all subcategories of the Eijffinger and Geraats (2006) index lead to a smaller bias in expectations, with political transparency having the largest effect.     

FDI spillovers and firm productivity during crisis: Empirical evidence from transition economies

Most studies on foreign direct investment (FDI) are nested within periods of economic prosperity. Our study investigates the impact of FDI spillovers on productivity during the global financial crisis (2006–2014) and the accompanying credit shortage. A dynamic panel analysis of firm-level data from two neighbouring but distinct transition economies, Croatia and Slovenia, reveals that the impact of the crisis may go as far as halting the process of learning through spillovers if firms have difficulties in accessing external funds. The implications of the study may prove particularly beneficial to policy makers grappling with the economic crisis following the COVID-19 pandemic.     

The nexus between exchange rates and stock markets: evidence from the euro-dollar rate and composite European stock indices using rolling analysis

Both the goods market hypothesis and the portfolio balance theory, suggest a nexus between exchange rates and stock prices, albeit with a different direction of causality. This paper, using daily data, takes up the issue of the linkages between stock prices and exchange rates in the case of the euro-dollar rate and two composite European stock market indices: the FTSE Eurotop 300 and FTSE eTX All-Share Index. It addresses the causal ordering issue between the two markets using rolling unit root, cointegration and Granger causality tests. This methodological approach allows for the emergence of a clearer picture of the possible dynamic linkages between exchange rates and stock prices. The empirical results provide evidence of time-varying causality between the two markets.     

The emerging market crisis and stock market linkages: further evidence

This study examines the long‐run price relationship and the dynamic price transmission among the USA, Germany, and four major Eastern European emerging stock markets, with particular attention to the impact of the 1998 Russian financial crisis. The results show that both the long‐run price relationship and the dynamic price transmission were strengthened among these markets after the crisis. The influence of Germany became noticeable on all the Eastern European markets only after the crisis but not before the crisis. We also conduct a rolling generalized VAR analysis to confirm the robustness of the main findings. Copyright © 2006 John Wiley & Sons, Ltd.     

Developing service climate in local vs. foreign firms in smaller Asian emerging markets: a resource-based and social exchange perspective

While research on drivers of service climate has focused on organisational resources and human resource practices such as training, employee autonomy and inter-departmental support, how these resources interrelate and influence service climate has not been examined, especially in the context of smaller Asian emerging market. Drawing on the resource-based view and its extension on dynamic capability, and social exchange theory, this qualitative study investigates how local and foreign firms in smaller Asian emerging markets create a favourable service climate. Our findings suggest three inter-related groups of factors that influence service climate, namely firm-based, market-based and culture-based drivers. Notably, foreign service firms perform better than their local counterparts in several firm-based drivers (e.g. service-oriented human resource management practices, work facilitation resources). Our study proposes a conceptual framework that integrates inter-relationships of organisational resource-based factors and explains how internal and external factors drive service climate in firms in smaller Asian emerging markets.     

Accounting and capital markets: a survey of the European evidence

The relationship between accounting information and capital markets has been the subject of numerous studies, especially in the US. The purpose of this article is to examine the corresponding evidence in Europe. This review classifies the European literature into three groups: studies of the market reaction to newly released accounting information; studies of the long-term association between stock returns and accounting numbers; studies devoted to the use of accounting data by investors and to the impact of market pressure on accounting choices. The paper reviews and summarizes the main results related to each of these topics. It also addresses some methodological issues and provides suggestions for future research.     

Noise trading and autocorrelation interactions in the foreign exchange market: Evidence from developed and emerging economies

This paper seeks to empirically determine whether feedback trading strategies result in stabilization or destabilization in the foreign exchange market and if such strategies are a distinctive characteristic of an emerging economy or they are a common element to both developed and emerging economies. These hypotheses are tested via the use of a feedback model augmented with a generalized autoregressive conditional heteroskedasticity (GARCH) process for modeling the errors. The results suggest presence of both positive and negative feedback trading and asymmetric behavior in both types of economies. Irrespective of the nature of feedback trading, presence of asymmetric behavior implies that market traders rely on central banks to intervene so they can realize short-term profits. Finally, in cases of a positive first-order autoregressive parameter presence of the bandwagon effect is implied, whereby past currency movements are followed by expectations of currency movements in the same direction.

Extinction accounting and accountability: Empirical evidence from the west European tissue industry

Recently, human activities are more and more invasive with respect to biodiversity. Several studies highlighted the key role played by accountants in contributing to the development of tools able to support company in assessing, reporting, and disseminating, as well as accomplishing, the preservation of natural species and ecosystems (King and Atkins, 2016). Corporate reporting of environmental information might increase the credibility of forest certifications, given that some scholars argued that certified forests are not often run, in a sustainable way. Moreover, certifications sometimes cover harmful forest practices (Elad, 2014) and do not ensure a good quality of environmental reporting and performance. The research question therefore intends to explore how extinction accounting and accountability (EAA) is able to reflect ex post the company's business strategy and, at the same time, influence ex ante its formulation by easing the prevention of deforestation risk and addressing the issue of credibility through specific actions. In more detail, the “Emancipatory Framework for Extinction Accounting and Accountability” (EFEAA) (Atkins and Maroun, 2018) was tested using content and interpretative analyses based on the reports inherent to top four companies working in West Europe in the tissue industry, where the preservation of forest heritage is a “compulsory route” for assuring the business sustainability, in terms of both raw material renewal and brand reputation. The findings highlighted the first attempt to carry out a qualitative research over the management of forest issues. In our study, companies tend to report advantages arising from the use of forest, but this kind of disclosure is too generic without providing evidence over the ecosystem services forests produce. Moreover, firm size affects the quantity and the quality of disclosure. At last, managerial implications and future research avenues are outlined and discussed.