Idiosyncratic volatility and cross‐sectional stock returns in Southeast Asian stock markets

We examine the role of idiosyncratic risk in five ASEAN markets of Malaysia, Singapore, Thailand, Indonesia, and the Philippines. Our research was motivated by the findings of Ang et al. (2006, 2009) of a ‘puzzling’ negative relation between idiosyncratic volatility and 1‐month ahead stock returns in developed markets and the suggestion of the ubiquity of these results in other markets. In contrast, we find no evidence of an idiosyncratic volatility puzzle in these Asian stock markets; instead, we document a positive relationship between idiosyncratic volatility and returns in Malaysia, Singapore, Thailand, and Indonesia and no relationship in the Philippines. The idiosyncratic volatility trading strategy could result in significant trading profits in Malaysia, Singapore, Thailand, and to some extent in Indonesia. Our study underscores the fact that generalizing empirical results obtained in developed stock markets to new and emerging markets could potentially be misleading.     

Financial Crisis and Intertemporal Linkages Across the ASEAN-5 Stock Markets

The stock indices of five ASEAN countries, namely, Singapore, Malaysia, Indonesia, Thailand and the Philippines have experienced a structural change after mid-1997 due to the Asian financial crisis, and another shift slightly more than a year later when the markets rebounded. Contemporaneous correlation in stock returns is the strongest and Indonesia leads the movements of the other indices during the crisis. The relative influence of foreign shocks is much more felt during the crisis, as seen in the stronger and longer horizon of responses of all the markets. The stock indices are cointegrated before, but not during the crisis. Price feedbacks between the larger markets of Singapore, Malaysia and Indonesia that existed before the crisis disappear once the crisis is over. Short-run linkages of Malaysia with the other markets have weakened after the crisis. With an increase in the degree of exogeneity of its stock market, contemporaneous co-movements with the other markets have reduced and the causal relationships no longer exist.JEL Classification: G15, F30An earlier draft of this paper was presented at the 11th Annual Conference on Pacific Basin Finance, Economics & Accounting held in Taipei. This paper benefited from the discussions at the conference. We are grateful to two anonymous referees for helpful comments and suggestions which led to further improvement of the paper.     

Determination of inflation in an open economy Phillips curve framework: the case of developed and developing Asian countries

This paper investigates the determination of inflation in the framework of an open economy forward-looking as well as conventional backward-looking Phillips curve for eight Asian countries – Japan, Hong Kong, Korea, Singapore, Philippines, Thailand, China Mainland and India. Using quarterly data from the 1990s to 2005 and applying the instrumental variables estimation technique, we find that the output gap is significant in explaining the inflation rate in almost all the countries. Furthermore, at least one measure of international competitiveness has a statistically significant influence on inflation in all the countries. The differences in the developed and developing world are highlighted by the significance of agriculture related supply shocks in determining inflation in the case of developing countries. For all countries, the forward-looking Phillips curve provides a better fit compared to the backward-looking variant.     

Dual foreign currency markets and the role of expectations: Evidence from the Pacific Basin countries

This paper analyzes the role of expectations about the government policy in the official foreign currency market in determining the black market premium. We use data for the recent float from six emerging markets of the Pacific Basin where active black markets for foreign currency exist, namely, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand. To test the impact of anticipated and unanticipated shocks to the official exchange rate on the black market premium, we employ the two-step procedure of Hoffman et al. [Hoffman, D.L., Low, S.A., Schlagenhauf, D.E., 1984. Tests of rationality, neutrality and market efficiency: a Monte Carlo analysis of alternative test statistics. J. Monet. Econ. 14, 339–363] which provides corrected F-statistics and allows us to draw valid inference in the presence of generated regressors. The main finding of our analysis is that anticipated and unanticipated shocks to the official exchange rate have an impact on the black market premium in all six Pacific Basin countries. These results suggest that portfolio balance models provide the suitable theoretical framework for analyzing the behaviour of the black market premium in the markets for foreign currency in the Pacific Basin countries. Furthermore, this implies that economic agents in these countries are sensitive to expected returns in foreign exchange.     

The bivariate GARCH approach to investigating the relation between stock returns,trading volume,and return volatility

We use a bivariate GJR-GARCH model to investigate simultaneously the contemporaneous and causal relations between trading volume and stock returns and the causal relation between trading volume and return volatility in a one-step estimation procedure, which leads to the more efficient estimates and is more consistent with finance theory. We apply our approach to ten Asian stock markets: Hong Kong, Japan, Korea, Singapore, Taiwan, China, Indonesia, Malaysia, the Philippines, and Thailand. Our major findings are as follows. First, the contemporaneous relation between stock returns and trading volume and the causal relation from stock returns and trading volume are significant and robust across all sample stock markets. Second, there is a positive bi-directional causality between stock returns and trading volume in Taiwan and China and that between trading volume and return volatility in Japan, Korea, Singapore, and Taiwan. Third, there exists a positive contemporaneous relation between trading volume and return volatility in Hong Kong, Korea, Singapore, China, Indonesia, and Thailand, but a negative one in Japan and Taiwan. Fourth, we find a significant asymmetric effect on return and volume volatilities in all sample countries and in Korea and Thailand, respectively.     

Oil shocks and stock markets: Dynamic connectedness under the prism of recent geopolitical and economic unrest

In this study we examine the dynamic structural relationship between oil price shocks and stock market returns or volatility for a sample of both net oil–exporting and net oil–importing countries between 1995:09 and 2013:07. We accomplish that, by extending the Diebold and Yilmaz (2014) dynamic connectedness measure using structural forecast error variance decomposition. The results for both stock market returns and volatility suggest that connectedness varies across different time periods, and that this time–varying character is aligned with certain developments that take place in the global economy. In particular, aggregate demand shocks appear to act as the main transmitters of shocks to stock markets during periods characterised by economic–driven events, while supply–side and oil–specific demand shocks during periods of geopolitical unrest. Furthermore, differences regarding the directions and the strength of connectedness can be reported both between and within the net oil–importing and net oil–exporting countries. These results are of particular importance to investors and portfolio managers, given the recent financialisation of the oil market.     

How do oil supply and demand shocks affect Asian stock markets?

This paper examines how oil market shocks affect Asian stock prices using the structural vector autoregression (VAR) approach. Global oil supply and demand shocks are disentangled using sign restrictions and elasticity bounds. Oil price increases are bad news only if the source is from oil-market-specific demand shifts. Northeast Asian stock markets are more resilient as investors’ expectation of continued economic growth outweighs the adverse effect of higher oil prices. Increased global economic activity also stimulates stock prices. Global oil shocks are more important in explaining variability in Asian stock returns compared with the United States, suggesting different dynamics in Asia.     

Asymmetric impacts of disaggregated oil price shocks on uncertainties and investor sentiment

This paper aims to examine short- and long-run asymmetries in the impacts of disaggregated oil price shocks on economic policy uncertainty, stock market uncertainty, treasury rates, and investor (bullish and bearish) sentiment in the US. To this end, we use a nonlinear auto-regressive distributed lag cointegration approach, which allows us to capture both positive and negative disaggregated oil shocks. We find that oil demand shocks are the main drivers of both measures of uncertainty, while oil supply shocks affect treasury rates. However, both oil demand shocks and oil supply shocks affect investor sentiment, with certain differences in the effects of positive and negative shocks. The overall effects of both oil demand and supply shocks—whether positive or negative—are stronger in the long-run than in the short-run. Additionally, we apply rolling causality and reveal evidence of a rather homogenous causal flow from disaggregated oil shocks to the variables studied, particularly around global stress periods. Our findings have implications for asset pricing and portfolio risk management and suggest policy formulations that differentiate between disaggregated positive and negative oil price shocks.

     

Exchange Rate Overshooting in East Asian Countries

Excess money supply was one factor among several contributing to the 1997 financial crisis in East Asian countries. The crisis resulted in abnormal currency depreciation. Using monthly data over the period 1987-2000 and error correction modeling techniques, we pay tribute to Rudiger Dornbusch by providing strong evidence for his "overshooting" hypothesis in Thailand, Korea, Indonesia, Malaysia, and the Philippines. We show that overshooting is a short-run phenomenon; in the long run, money seems to be neutral.     

Corporate Performance in the East Asian Financial Crisis

The sharp decline in the once-stellar performance of East Asiancorporations following the 1997 financial crisis has sparkedan intense debate. Some observers argue that external shocks,including a drop in aggregate demand and a shortage of workingcapital, explain the corporate sector's poor performance. Othersassert that the difficulties were apparent well before the crisisand that the risky financial policies pursued by these firmsleft them vulnerable. A survey of the literature shows littlemicroeconomic evidence to support either view. This article compares the growth and financing patterns of EastAsian corporations in the years before the crisis with thosein other countries. It finds little microeconomic evidence thatcorporate growth was weakening but some support for the argumentthat many firms had a weak financial structure that left themvulnerable to an economic downturn. Based on a sample of morethan 850 publicly listed firms in the four crisis countries—Indonesia, Malaysia, the Republic of Korea, and Thailand and—andtwo comparators, Hong Kong (China) and Singapore, it appearsthat firm specific weaknesses already in existence before thecrisis were important factors in the deteriorating performanceof the corporate sector.      

International portfolio flows and exchange rate volatility in emerging Asian markets

This paper investigates the effects of equity and bond portfolio inflows on exchange rate volatility using monthly bilateral data for the US vis-a-vis seven Asian developing and emerging countries (India, Indonesia, Pakistan, the Philippines, South Korea, Taiwan and Thailand) over the period 1993:01–2015:11. GARCH models and Markov switching specifications with time-varying transition probabilities are estimated in addition to a benchmark linear model. The evidence suggests that high (low) exchange rate volatility is associated with equity (bond) inflows from the Asian countries toward the US in all cases, with the exception of the Philippines. Therefore, capital controls could be an effective tool to stabilise the foreign exchange market in countries where flows affect exchange rate volatility.     

Weathering the Storm: The Impact of the East Asian Crisis on Farm Households in Indonesia and Thailand

This article assesses the impact of the East Asian financialcrisis on farm households in two of the region's most affectedcountries. Indonesia and Thailand, using detailed household-levelsurvey data collected before and after the crisis began. Althoughthe nature of the shocks in the two countries were similar,the impact on farmers' income (particularly on distribution)was quite different. In Thailand, poor farmers bore the bruntof the crisis, in part because of their greater reliance onthe urban economy, than did poor farmers in Indonesia. Urban-rurallinks are much weaker in Indonesia. Farmers in both countries,particularly those specializing in export crops, benefited fromthe currency devaluation. Although there is some evidence thatthe productivity of the smallest landholders declined over theperiod in question, it is difficult to attribute this directlyto the financial crisis. At least in Thailand, a rural creditcrunch does not seem to have materialized.      

The effects of oil price shocks on U.S. stock order flow imbalances and stock returns

This paper investigates for the first time the effects of oil demand shocks and oil supply shocks on stock order flow imbalances leading to changes in stock returns. Through the estimation of a structural VAR model, positive oil demand shocks are able to explain almost 36% of the observed variation in the daily average stock order flow imbalances measured by the buy/sell trades ratio; which consequently lead to a negative rather than positive stock returns reaction. In contrast, oil supply shocks exhibit a negative and marginally significant effect on stock order flow imbalances. Our aggregate analysis suggests that positive shocks on stock order flow imbalances are negatively related to stock returns. These effects are stronger for oil-related sectors when compared with the rest of the equities sectors.     

中国与东盟四国吸引跨国公司地区总部的税收政策比较研究

东盟的新加坡、马来西亚、泰国和菲律宾四国(以下简称"东盟四国")在运用税收手段吸引跨国公司地区总部方面有很多有价值的经验。本文对比了我国和东盟四国在吸引跨国公司地区总部方面的税收政策,提出我国应该借鉴东盟四国的经验,把吸引跨国公司地区总部纳入国家引进外资的战略框架。     

Do heterogeneous oil price shocks really have different effects on earnings management?

Under the modern corporate governance structure, there is a knowledge gap in how companies' financial reporting practices respond to oil price shocks in China. To fill this gap, we employ China's A-share listed companies and follow Kilian (2009) study to investigate how the three types of classical oil shocks affect corporate earnings management heterogeneously. We also consider the role of oil implied volatility in this relationship and further examine the possible heterogeneity between energy-related and non-energy-related subsamples. The empirical results show that there are variant effects among the heterogeneous oil price shocks on earnings management. Specifically, oil supply shocks stimulate firms to manipulate more accrual and real earnings, and firms are more likely to carry out accrual earnings management downward. Oil aggregate demand shocks weaken the degree of accrual earnings manipulation and mainly reduce the negative accrual earnings manipulation. Oil-specific demand shocks constrain the earnings management behavior of companies and improve their accounting quality. Besides, the increased uncertainty of oil price weakens the promotion effect of oil supply shocks on earnings manipulation, and the moderating effect occurs mainly in downward earnings management. Furthermore, the subsample estimated results reveal that oil price shocks do not affect the degree of accrual earnings management of energy-related companies. Instead, they impact the non-energy-related companies. Overall, our findings provide a series of targeted policy recommendations to mitigate the principal-agent problems and cope with energy price volatility risks.     

经济波动同步性、需求冲击与供给冲击——来自东盟国家的实证分析

运用结构向量自回归模型将典型东盟国家的需求扰动与供给扰动序列识别出来;在此基础上采用面板回归模型对影响东盟主要国家产出同步波动性与遭受冲击的对称性联系起来.研究发现,东盟五国整体来看,其外部冲击是对称的,符合Mundell（1961）开展货币合作的标准;供给冲击与需求冲击对于维持东盟国家经济周期同步性具有重要作用;相对而言,供给冲击对东盟国家经济周期同步性影响更大.最后给出未来东盟国家区域货币化合作政策建议.     

Early warning systems using dynamic factor models: An application to Asian economies

This study develops an early warning system for financial crises with a focus on small open economies. We contribute to the literature by developing macro-financial dynamic factor models that extract useful information from a rich but unbalanced mixed frequency data set that includes a range of global and domestic economic and financial indicators. The framework is applied to several Asian countries—Thailand, South Korea, Singapore, Malaysia, the Philippines and Indonesia. Logit regression models that use the extracted factors and other leading indicators have significant power in predicting systemic events. In-sample and out-of-sample test results indicate that the extracted factors help to improve the predictive power over a model that uses only sufficiently long history indicators. Importantly, models that include the dynamic factors yield consistently better out-of-sample crisis prediction results for key performance measures such as a usefulness index, the noise to signal ratio, and AUROC.     

Price Linkages in Asian Equity Markets: Evidence Bordering the Asian Economic, Currency and Financial Crises

This paper examines price linkages among Asian equity markets in the period surrounding the recent Asian economic, financial and currency crises. Three developed markets (Hong Kong, Japan and Singapore) and six emerging markets (Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand) are included in the analysis. Multivariate cointegration and level VAR procedures are conducted to examine causal relationships among these markets. The results indicate that there is a stationary relationship and significant causal linkages between the Asian equity markets. Nevertheless, lower causal relationships that exist between the developed and emerging equity markets suggest that opportunities for international portfolio diversification in Asian equity markets still exist.     

Hot Money and Business Cycle Volatility: Evidence from Selected ASEAN Countries

This study investigates the linkage between speculative capital and business cycles in Malaysia, Thailand, and Singapore from 1981:Q1 to 2012:Q4. We use the multivariate Markov-switching intercept autoregressive heteroskedasticity vector autoregressive (MSIAH-VAR) model and observe that while speculative shocks during the tranquil period temporarily promoted Malaysia’s economic growth, they temporarily damaged economic growth in Thailand and Singapore. Moreover, speculative capital flows from abroad exacerbated economic volatility and damaged economic growth prospects for all these countries during the crisis period. Thus, it may be important for policymakers to take appropriate actions against the potential risk of economic instability and market volatility from speculative capital.     

Stress testing and corporate finance

The article contributes to the literature on financial fragility, studying how macroeconomic shocks affect supply and demand in the corporate debt market. We take into account the effect of the competitive environment, as well as the risk level, measured by companies’ default rate. The model is estimated using data from the Harmonised BACH database of corporate accounts for large euro area countries on the 1993–2005 period, in order to carry out an illustrative stress testing exercise. We measure the impact of large macroeconomic shocks (a severe recession and a sharp increase in oil prices) on the equilibrium in the debt market.