Diversification in euro area stock markets: Country versus industry

The harmonization of fiscal and economic policy within the European Monetary Union (EMU) has had a considerable impact on the economies of member countries. In particular, several studies indicate that the proceeding economic integration among euro area countries has important consequences for the factors driving asset returns in financial markets. However, these studies rely on one specific methodology [Heston, S.L., Rouwenhorst, K.G., 1994. Does industrial structure explain the benefits of international diversification? Journal of Financial Economics 36, 3–27; Heston, S.L., Rouwenhorst, K.G., 1995. Industry and country effects in international stock returns. Journal of Portfolio Management Spring, 53–58], that has recently been criticized as too restrictive. This study adopts a mean–variance approach instead. Using recent euro area stock markets data, we find strong evidence that diversification over industries yields more efficient portfolios than diversification over countries.     

An investigation of the stability of returns in Western European equity markets

This paper investigates the temporal stability of various dimensions of the returns of 16 European stock markets that are relevant to an analysis of international portfolio diversification. The basic data consist of daily stock market price indices for these markets. This group of indices comprehends a wide range of stock markets differentiated by size, age and technological sophistication, but in each case located in Western Europe. Two main tests were conducted: (a) ANOVA to identify inter-temporal variability and inter-market variability over 24 three-month sub-periods from January 1989 to December 1994, and (b) cluster analysis to identify groups of markets that exhibit similar behaviour patterns. The findings suggest that, while the potential gains from an internationally diversified portfolio restricted to the equities of Western European markets appear to be substantial, the lack of inter-temporal stability in the composition of the optimal portfolio from one period to another makes these gains difficult to achieve in practice.     

Extreme observations and diversification in Latin American emerging equity markets

In this paper, we focus on the tails of the unconditional distribution of Latin American emerging markets stock returns. We explore their implications for portfolio diversification according to the safety first principle, first proposed by Roy [Econometrica (1952) 20, 431]. We find that the Latin American emerging markets have significantly fatter tails than industrial markets, especially, the lower tail of the distribution. We consider the implication of the safety first principle for a US investor who creates a diversified portfolio using Latin American stock markets. We find that a US investor gains by adding Latin American equity markets to her purely domestic portfolio. For different parameter specifications, we find a more realistic asset allocation than the one suggested by the literature based on the traditional mean-variance framework.     

Equity market integration in Central European emerging markets: A cointegration analysis with shifting regimes

We investigate the existence of long-run relations between emerging Central European stock markets and the mature stock markets of Europe and the United States. Allowing for instability in these long-run relations, we obtain evidence of links between the Central European markets that is stronger than has previously been reported. We also show that the Central European markets display equilibrium relations with their mature counterparts, which persist after controlling for structural changes. It follows that Central European markets have become more integrated with global markets.     

Art as an investment: risk, return and portfolio diversification in major painting markets

The present paper examines risk, return and the prospects for portfolio diversification among major painting and financial markets over the period 1976–2001. The art markets examined are Contemporary Masters, French Impressionists, Modern European, 19th Century European, Old Masters, Surrealists, 20th Century English and Modern US paintings. The financial markets comprise US Treasury bills, corporate and government bonds and small and large company stocks. In common with the published literature in this area, the present study finds that the returns on paintings are much lower and the risks much higher than conventional investment markets. Moreover, while low correlations of returns suggest that opportunities for portfolio diversification in art works alone and in conjunction with equity markets exist, the construction of Markowitz mean‐variance efficient portfolios indicates that no diversification gains are provided by art in financial asset portfolios. However, diversification benefits in portfolios comprised solely of art works are possible, with Contemporary Masters, 19th Century European, Old Masters and 20th Century English paintings dominating the efficient frontier during the period in question.     

Interest Rates and Stock Prices: Evidence from Central and Eastern European Markets

We provide empirical evidence regarding the responses of Central and Eastern European capital markets to monetary policy via domestic and international short-term interest rate shocks. The analysis is conducted using a four-variable structural vector error correction model identified by means of permanent-transitory restrictions. The results indicate a noticeable effect of the international interest rate on stock market indexes in the cases of the Czech Republic, Hungary, Poland, and Romania. Since no monetary policy autonomy exists in Bulgaria, Latvia, and Lithuania, we find support only for the inverse relationship between foreign interest rate and stock index prices.     

Emerging markets and portfolio foreign exchange risk: An empirical investigation using a value-at-risk decomposition technique

The correlation between a portfolio's equity and foreign exchange components plays a role in reducing foreign exchange exposure. Investors must account for this correlation when determining the extent of foreign exchange risk in emerging market equity portfolio investments. This study employs a VaR risk factor mapping technique, under the variance–covariance VaR approach, to decompose portfolio risk in Argentina, Brazil, China, India, Mexico and Russia. For comparison purposes, the same technique is used to decompose portfolio risk in the US. The study is conducted from the perspective of a European equity investor with a portfolio of equities in each country. By employing the VaR decomposition technique, the correlation between a portfolio's equity and foreign exchange components is taken into account and portfolio foreign exchange risk is extracted from portfolio systematic risk. Our results uniquely demonstrate significant variation in foreign exchange risk in emerging markets.     

捷克、波兰银行业免疫于欧债危机原因浅析

欧债危机中,捷克、波兰银行业保持平稳较快增长,文章将其原因归纳为：国内政治稳定,政府债务水平较低,劳动力具有竞争优势,与德国的经贸联系紧密,拥有独立的货币政策,未出现严重的资本外逃。文章认为两国银行业未来仍将保持增长潜力,并总结了两国银行业发展经验带来的启示。     

Investments,Credit, and Corporate Financial Distress: Evidence from Central and Eastern Europe

Although they are instrumental for economic development, productivity-enhancing corporate investments may increase the financial vulnerability of companies, especially in an economic and financial crisis. We employ an instrumental probit model with the aim of finding evidence for the investment and credit patterns that led companies into financial distress during the global financial crisis 2009–2010. The company-level micro-data for our study on three Central and East European countries—Hungary, Bulgaria, Romania and two Baltic countries, Latvia and Lithuania—originates from two independent surveys, the Business Environment and Enterprise Performance Survey conducted in 2008 and the Financial Crisis Survey conducted in 2009/2010. Both were carried out jointly by the EBRD and the World Bank. Our results emphasize a substantial adverse impact from investment intensity and debt financing on company financial soundness during a crisis. On top of that, we discover a strong non-linear pattern in the sensitivity of company distress to its investment-financing nexus.     

Nonlinear serial dependence and the weak-form efficiency of Asian emerging stock markets

The objective of this paper is to re-examine the weak-form efficiency of 10 Asian emerging stock markets. Using a battery of nonlinearity tests, the statistical results reveal that all the returns series still contain predictable nonlinearities even after removing linear serial correlation from the data. The next stage of sub-sample analysis using the Hinich [Hinich, M., 1996. Testing for dependence in the input to a linear time series model. Journal of Nonparametric Statistics 6, 205–221] bicorrelation test shows that the 10 Asian series follow a pure noise process for long periods of time, only to be interspersed with brief periods of strong nonlinear dependence. The exploratory investigation found that the cross-country differences in nonlinear departure from market efficiency can be explained by market size and trading activity, while the transient burst of nonlinear periods in each individual market can be attributed largely to the occurrence of economic and political events.     

Socially responsible investing and stock performance: New empirical evidence for the US and European stock markets

This paper empirically examines the theoretically ambivalent relationship between socially responsible investing (SRI) and stock performance. It contributes to the existing literature by considering both the US and the entire European stock markets and by using consistent world-wide corporate sustainability performance data. Our portfolio analysis from 1998 to 2009 is based on the common four-factor model according to Carhart (1997), which comprises market return, size, value, and momentum factors. We show for the US and the European stock markets that SRI is associated with large-sized firms. The insignificant abnormal stock returns for SRI in both regions are the main result of our paper. Therefore, our study supports the view that SRI stocks are correctly priced by market participants, although we cannot rule out that a corresponding mispricing has existed before the beginning of our observation period in 1998.     

The estimation and determinants of emerging market country risk and the dynamic conditional correlation GARCH model

Country risk assessment is central to the international investment, which recently has increasingly focused on emerging markets (EM). In this paper we proxy for country risk in EM by using time-varying beta. We extend existing literature by applying a dynamic conditional correlation GARCH model. After confirming beta is time varying in twenty EM over the period January 1995 to December 2008 we investigate the GARCH (1,1) model and find the t-distribution generates the lowest forecast errors compared to the normal error distribution and a generalised error distribution. In a comparison of previous modelling techniques the results of our modified Diebold-Mariano test statistics suggest that the Kalman Filter model outperforms the GARCH model and the Schwert and Seguin (1990) model. Using a DCC-GARCH model our evidence suggests that considering dynamic betas can improve beta out-of-sample predicting ability and therefore offers potential gains for investors. Finally, we find dynamic betas across EM are strongly associated with each nation's interest rates, US interest rates and the Consumer Price Index (CPI) and to a lesser extent the exchange rates. Our results have some similarities to those in previous studies of developed markets in the economic determinants of time-varying beta but differences exist in the results on best model to forecast time-varying beta. These findings have implications for estimating country risk for investment and risk management purposes in EM.     

Research on the Credit Cycle and Business Cycle with a Focus on Ten States from Central,Eastern, and Southeastern Europe

By performing an econometric analysis of the credit cycle and business cycle from an individual as well as a comparative perspective, with a focus on ten relevant economies from the areas of Central, Eastern, and Southeastern Europe, this research offers a fresh view regarding the importance of banks in promoting long-term economic growth through their lending capacity. The purpose is to better understand the behavior (the short- and medium-term dynamics) of the credit cycle and business cycle and the effects of the interactions between them. The results of this study offer valuable insights for both academics and policymakers and provide a warning to regulators not to overregulate or put too much pressure on banking activity.     

Intra- and inter-regional spillovers between emerging capital markets around the world

In this paper, returns and volatility spillovers between emerging capital markets of Central and Eastern Europe, Latin America, and South-East Asia are investigated. We distinguish between spillovers from countries located in one region (intra-regional) and in different regions (inter-regional) after controlling for shocks originating at home and on the global market. Both intra- and inter-regional spillovers are significant, with the former being more pronounced than the latter. Our findings indicate that linkages between emerging markets are not solely due to their common dependence on the global capital market and highlight the importance of common factors in intra-regional interdependencies.     

Variance ratio tests of the random walk hypothesis for European emerging stock markets

The hypothesis that stock market price indices follow a random walk is tested for five European emerging markets, Greece, Hungary, Poland, Portugal and Turkey, using the multiple variance ratio test. In four of the markets, the random walk hypothesis is rejected because of autocorrelation in returns. For the Istanbul market, which had markedly higher turnover than the other markets in the 1990s, the stock price index follows a random walk. This contrasts with the results of earlier research, carried out for periods of lower turnover, which rejected the random walk hypothesis.     

Liquidity and stock returns in pure order-driven markets: evidence from the Australian stock market

This paper examines the relationship between liquidity and stock returns in the pure order-driven stock market of Australia. The bid-ask spread, turnover rate, and amortized spread are used as proxies for liquidity. In addition to liquidity, other factors that have been found to influence stock returns, such as beta and size, are also considered. Seemingly unrelated regressions (SUR) and the cross-sectionally correlated timewise autoregressive (CSCTA) model form the methodological basis for this research. A small liquidity premium is found in the Australian market, which persists for the entire year. There is also strong evidence of a negative size effect.     

Influence of cultural factors on price clustering and price resistance in China's stock markets

This paper builds on prior research by analysing the impact of cultural factors on both price clustering and price resistance in China's stock markets. The results support the presence of cultural factors impacting on price clustering with the digit 8 showing a higher propensity for clustering and the digits 4 and 7 showing a lower propensity in the A‐share market, where stock is denominated in renminbi and traded by mainland Chinese. These results are further supported by an analysis of the B‐share market, where cultural factors have no (or less) impact on the price of Chinese stocks traded by foreign investors in US dollars (or in Hong Kong dollars). A range of measures for price resistance show the digits 0 and 5 to be significant resistance points in the A‐share market. Although digit 8 cannot be considered as a resistance point, its resistance level is highest among the remaining numbers. In conclusion, cultural factors help to explain not only price clustering in the Chinese stock markets but price resistance levels as well, albeit at a weak level.     

Macroprudential Policies and Housing Prices: A New Database and Empirical Evidence for Central,Eastern, and Southeastern Europe

Several countries in Central, Eastern, and Southeastern Europe used a rich set of prudential instruments during the recent credit and housing boom and bust cycles. We construct a comprehensive database of these policy measures covering 16 countries at a quarterly frequency. We use this database to investigate whether the policy measures had an impact on housing price inflation. The measures that appeared to be effective were capital measures (minimum capital adequacy ratio, maximum ratio of lending to households to share capital) and nonstandard liquidity measures (marginal reserve requirements (MRRs) on foreign funding, MRRs linked to credit growth).     

Tests of technical trading strategies in the emerging equity markets of Latin America and Asia

This study examines the potential profit of ten Variable Length Moving Average (VMA) technical trading rules in ten emerging equity markets in Latin America and Asia from January 1982 through April 1995. The average difference in buy − sell returns after trading costs for each rule and country are compared to a buy and hold strategy. Taiwan, Thailand and Mexico emerge as markets where technical trading strategies may be profitable. We find no strong evidence of profitability for the other markets. However, we find that 82 out of the 100 country–trading rule combinations tested in ten emerging markets, disregarding their statistical significance, correctly predict the direction of changes in the return series. These findings may provide investors with important asset allocation information.     

The effectiveness of incorporating higher moments in portfolio strategies: evidence from the Chinese commodity futures markets

This paper examines portfolio strategies that incorporate individual and systematic higher-order moments, within a stochastic optimization framework with uncertain mean and covariance. Using weekly, daily, and 30-minute interval data on Chinese commodity futures, we show that incorporating higher moments into portfolio strategies generally leads to better performance. The systematic fourth-order moment, among all systematic moments considered, can lead to the most robust, and a relatively large, improvement in investment performance, while the contribution of individual moments to the improved performance depends on the data horizon. We also find that adding higher moments brings superior performance in more cases for 30-minute-interval data than for other low-frequency data, suggesting that our strategy most likely performs best in 30-minute-rebalancing investments.