Impact of economic growth volatility on income inequality: ASEAN experience

The study attempts to examine the symmetric and the asymmetric impact of volatility of economic growth on the inequality of income in the major ASEAN economies over the period 1980–2015. Financial development, trade openness as a proxy of globalization, inflation, human capital formation, and fiscal policy are utilized as major control variables. The paper tries to explore the causal association between inequality of income distribution and economic growth volatility, exploring simultaneously the long-run association and the short-run dynamics in the time series structure. The study applied Clemente–Montanes–Reyes unit root test to identify the structural break in the time series. Further, the cointegrating relationship of the time series observations was explored by applying the ARDL (linear) bounds test approach along with the nonlinear ARDL for making fruitful comparisons in the long-run relationship among the variables. The countries chosen are Malaysia, Indonesia, Thailand, Singapore and The Philippines. The empirical findings strongly suggest a long-run cointegrating relationship between income inequality and growth volatility with a positive and statistically significant impact. Also, the causality analysis was explored using the Toda and Yamamoto (1995) method of Granger causality. The causality test shows that there exists bidirectional causality from inequality transmission to economic growth volatility. The implications that are developed from this study helps us to understand the various policy reforms in the ASEAN region, that are more transparent and can make these economies less susceptible to risks.     

R&D in Indian manufacturing enterprises: what shapes it?

The article examines the factors influencing research and development (R&D) in manufacturing entities. Using data on a large sample of companies for the period 1995–2007, the finding indicates that large companies have a higher probability of pursuing R&D, although with lower intensity. In terms of magnitudes, a 10% increase in firm size raises R&D intensity by roughly 0.6%. Both the intensity and the probability of undertaking R&D initially declines for older firms. Outward orientation, and especially foreign currency earnings, has a significant bearing on R&D efforts. R&D efforts are also found to vary significantly across firm ownership.     

The effect of CEO ownership on the information content of reported earnings

This paper examines the relation between capital market perceptions of earnings quality and CEO equity ownership. Using the earnings response coefficients (ERCs) from annual returns–earnings regressions as a proxy for investor perceptions of earnings quality, we find that ERCs first increase and then decline across higher levels of CEO ownership with an inflection point around 25% ownership. Using analyst behavior as another proxy for the perceptions of financial analysts, we find that earnings forecasts are more accurate as ownership increases, but once ownership levels reach about 25%, accuracy declines with further increases in ownership. Forecast dispersion, forecast revision volatility, and analyst following decline and then increase across increasing levels of CEO ownership. Our results suggest that, for low levels of CEO ownership, earnings are perceived as being more informative about future firm performance as ownership increases. However, once ownership levels are high, earnings are perceived as being less informative with further increases in ownership.     

STRATEGIC RULES ON SPECULATION IN THE FOREIGN EXCHANGE MARKET

In this article we specify the conditions for profitable speculaion in the foreign exchange market with spot and forward contracts. We derive the unique strategic rules from the initial two‐choice situations in a given environment. Finally, in a more complex structure involving covered arbitrage, speculative profits are computed with iterative plays. JEL classification: F310     

HEDGING WITH INTERNATIONAL STOCK INDEX FUTURES: AN INTERTEMPORAL ERROR CORRECTION MODEL

In this paper we extend the traditional price change hedge ratio estimation method by applying the theory of cointegration to hedging with stock index futures contracts for France (CAC 40), the United Kingdom (FTSE 100), Germany (DAX), and Japan (NIKKEI). Previous studies ignore the last period's equilibrium error and short-run deviations. The findings of this study indicate that the hedge ratios obtained from the error correction method are superior to those obtained from the traditional method as evidenced by the likelihood ratio test and out-of-sample forecasts. Using the procedures developed in this paper, hedgers can control the risk of their portfolios more effectively at a lower cost.     

The Current Account in Developing Countries: A Perspective from the Consumption-Smoothing Approach

According to the consumption-smoothing view, a high degree ofcapital mobility implies that agents are able to fully smooththeir consumption in the face of shocks. This article developsa framework to test whether, indeed, the current account indeveloping countries acts as a buffer to smooth consumptionin the face of shocks to national cash flow, which is definedas output less investment less government expenditure. Usingvector autoregression analysis, we estimate the optimal consumption-smoothingcurrent account with data from a sample of forty-five developingcountries. We find that for a majority of the countries, thehypothesis of full consumption smoothing cannot be rejected,suggesting that capital mobility may after all be quite highin this group of countries.     

The Hedging Effectiveness of ECU Futures Contracts: Forecasting Evidence from an Error Correction Model

In this paper, the traditional price change hedge ratio estimation method is extended by applying the theory of cointegration in case of hedging with European Currency Unit (ECU) futures contracts. Previous studies ignore the last period's equilibrium error and short-run deviations. The findings of this study indicate that the hedge ratio estimated by the error correction method is superior to the one obtained from the traditional method, as evidenced by the likelihood ratio test and out-of-sample forecasts. Hedgers can control the risk of their portfolios more effectively at a lower cost.