The demand for money in korea: Evidence from the cointegration test

This paper shows that there exists a long-run equilibrium relationship between M2 and its determinants, real income and the long-term interest rate, in Korea by using Johansen and Juselius maximum likelihood cointegration method. However, M1 does not have any meaningful cointegration relationships with its determinants. The long-term interest rate is a better proxy than the short-term rate to measure the opportunity cost of holding money. Based on the results, a broad definition of money is a better measure than a narrow definition of money in considering the long-run economic impacts of changes in monetary policy in Korea.     

Imported Technology and R&D in the Taiwanese Electronic Industry

The paper identifies the R&D status of the Taiwanese electronics industry by employing a bivariate probit selectivity model to examine the relationship between imports of technology and inhouse R&D at the firm level. A complementary relationship between imported technology and inhouse R&D is observed, which implies that imported technology does not inhibit inhouse R&D in the Taiwanese electronic industry. However, technology-importing enterprises have a higher average level of R&D expenditure than nonimporting ones, indicating that the R&D conducted in the industry is dominated by the adaptive R&D of the technology-importing enterprises.     

Optimal Tariffs with Endogenous Production Location

This paper attempts to examine how the inclusion of economic space affects trade policies and to make a comparison between optimal tariffs with endogenous location and those with exogenous location. In particular, it is shown that the output effect of a tariff change with endogenous location is greater than that with exogenous location if the production function is non-CRS. Moreover, when the production function is CRS (resp. not CRS), the optimal tariff under endogenous location is the same as (lower than) the one under exogenous location.     

Stock Return Predictability of Residual‐Income‐Based Valuation: Risk or Mispricing?

In an influential paper, Frankel and Lee (1998) conclude that the stock return predictability of the value‐to‐price ratio (V/P) results from market mispricing. This paper confirms whether the V/P reflects the rational risk premiums associated with the V/P factor or is better explained by market inefficiency. Following Daniel and Titman (1997), this paper examines whether the V/P characteristics or the V/P factor loadings predict stock returns. The findings show that the V/P loadings are positively associated with average returns even after controlling for the V/P characteristics in both time series and cross‐sectional tests. The overall results suggest that the mispricing explanation of the V/P effect is premature.     

A behavioral explanation of the value anomaly based on time-varying return reversals

We investigate the dynamics of the value anomaly in order to identify the driving forces of the anomaly. We show that the large positive value-minus-growth portfolio returns are explained by an over-reaction (under-reaction) to the positive (negative) market movements in short, specific time periods, during which the average returns of value-minus-growth portfolios are more than 2% a month. We propose an explanation based on behavioral biases: the dynamics of the value anomaly reflect the increased speed of return reversals subsequent to overreaction. Two conditions that increase the return reversals are proposed: when investors respond to public signals asymmetrically or when public signals become noisy. Our empirical results reveal that the value anomaly is explained by either one of these two channels.     

Accounting education,firm training and information technology: a research note

Rapid developments in information technology (IT) have posed many challenges to the accounting profession. In this study we examined what has been done in US colleges by polling auditors' perceptions to investigate whether US accounting firms provide their auditors with more information on current IT topics than colleges do. Also educators in the USA are surveyed to find out what they are planning to do in college courses to ensure that accounting graduates acquire necessary IT knowledge/skills. The results indicate that the entry-level auditors have had significantly more exposure to IT topics while in college than the senior auditors had, which suggests that educators have modified their curricula by incorporating more IT topics into accounting programmes. According to the findings, educators recognize the importance of IT topics, but only a few IT topics can/will be covered in accounting curricula. Implications, limitations, and future research directions of this study are also discussed.     

Spillover effects of the 2008 financial crisis on NIE stock markets

This article estimates dynamic conditional correlations of stock returns across countries by using DCC–GARCH model and analyse spillover effects of the 2008 financial crisis on the NIE’s stock markets. The results show that there is no regime shift in mean equation of the correlation coefficient during the financial crisis. It may imply there are no mean spillover effects of the US financial crisis on the NIE’s stock markets. However, there are volatility spillover effects of the financial crisis sparked in 2008 from the US to the NIE’s markets.     

Estimating interest rate setting behaviour in Korea: a constrained ordered choices model approach

We study the Bank of Korea’s interest rate setting behaviour using an array of constrained ordered choices models, where the Monetary Policy Committee revises the target policy interest rate only when the current market interest rate deviates from the optimal rate by more than certain threshold values. Our models explain changes in the monetary policy stance well for the monthly frequency Korean data since January 2000. We find important roles for the output gap and the foreign exchange rate in understanding the Bank of Korea’s rate decision-making process. We also implement out-of-sample forecast exercises with September 2008 (Lehman Brothers Bankruptcy) for a split point. We demonstrate that out-of-sample predictability improves greatly for the rate cut and the rate hike decisions using SE-adjusted inaction bands.     

Systemic risk in the European sovereign and banking system

We investigate the systemic risk of the European sovereign and banking system during 2008–2013. We utilize a conditional measure of systemic risk that reflects market perceptions and can be intuitively interpreted as an entity’s conditional joint probability of default, given the hypothetical default of other entities. The measure of systemic risk is applicable to high dimensions and not only incorporates individual default risk characteristics but also captures the underlying interdependent relations between sovereigns and banks in a multivariate setting. In empirical applications, our results reveal significant time variation in systemic risk spillover effects for the sovereign and banking system. We find that systemic risk is mainly driven by risk premiums coupled with a steady increase in physical default risk.     

The Bankruptcy Cost of the Life Insurance Industry Under Regulatory Forbearance

Abstract

In this study the Taiwan Insurance Guaranty Fund (TIGF) is introduced to investigate the ex ante assessment insurance guaranty scheme. We study the bankruptcy cost when a financially troubled life insurer is taken over by TIGF. The pricing formula of the fair premium of TIGF incorporating the regulatory forbearance is derived. The embedded Parisian option due to regulatory forbearance on fair premiums is investigated. The numerical results show that leverage ratio, asset volatility, grace period, and intervention criterion influence the default costs. Asset volatility has a significant effect on the default option, while leverage ratio is shown to aggravate the negative influence from the volatility of risky asset. Furthermore, the numerical analysis concludes that the premium for the insurance guaranty fund is risk sensitive and that a risk-based premium scheme could be implemented, hence, to ease the moral hazard.