On the Chinese B-share price discount puzzle: Some new evidence

Since February 2001, the Chinese Securities Regulatory Commission allowed domestic trade in foreign-currency denominated shares (B-shares) whose trade was originally restricted to foreign investors. We investigate possible effects of lifting the ownership restriction on the B-share discounts and explore why the discount persists even after removing the restriction. The discount is the percentage by which the B-shares are priced less than the otherwise identical Chinese-currency denominated shares held by domestic investors (A-shares). The results suggest that prices in the B- and A-share markets are closely linked over the long-run and that this equilibrium relationship strengthened in the post-lifting period. Our results further rule out information asymmetry as a reason for the continuation of the discount and support instead the importance of firm size and relative supply of the B-shares.     

Predicting Future Buyer Behavior with Consumers' Confidence and Sentiment Indexes

Knowledge of consumer attitudes and expectations is an indispensable marketing tool and may be useful for predicting changes in consumer spending and saving patterns. However, most empirical research on the value of consumer confidence (sentiment) indexes for forecasting future buyer behavior has focused on the statistical correlation between these indexes and several measures of consumer spending and business activity. As Huth et al. (1994) correctly pointed out, a more appropriate approach is to focus on the direction of Granger-causality between these variables. Prior to testing for Granger-causality, we investigate the stationarity properties of alternative measures of these variables and we employ a flexible lag structure. Our empirical results support the use of these indexes to forecast business activity but not consumer purchases or overall economic activity.     

‘Efficient’ market testing of the expectations-adjusted supply function hypothesis for Italy

This paper analyses the intertemporal adjustment process of price–cost margins at the four-digit Standard Industrial Classification (SIC) industry level. Our intial analysis shows the assumption that the adjustment process is consistent over all industries is inappropriate, while the assumption that the adjustment process is consistent over two-digit industries is supported in approximately 31% of the sample industries. We proceed to analyse industry-specific adjustment parameters and find that 50% of the sample are compatible with a decay of 90% of the supranormal return with four years and 85% of the sample exhibit margins that decay in approximately 10 years. Further analysis allows us draw some weak conclusions on the determinants of the adjustment parameter. We find a change in cocentration, high imports, a mature market and low research and development expenditures contribute to slightly lower adjustment coefficients and a faster decay of supranormal profits. Finally, the modelling of the adjustment coefficients highlights the risks associated with excluding outlier data points.     

Financial progress and the stability of long-run money demand: Implications for the conduct of monetary policy in emerging economies

This paper examines whether recent financial changes in three emerging market economies in the Gulf region (Bahrain, the UAE, and Qatar) have distorted the character and the stability of their underlying long-run money demand relations. Money demand instability prompts concerns about the appropriateness of targeting monetary aggregates and could weaken the presumed link between monetary policy and its ultimate objectives. Our results suggest that the quick pace of financial changes in the three emerging market economies did not cause undue shifts in their equilibrium money demand relations. Further evidence from direct tests of cointegration stability indicates the superiority of targeting M1 in the UAE and M2 for Qatar. In Bahrain, both M1 and M2 prove equally appropriate to guide monetary policy. Thus, despite the wave of financial developments that have recently swept the three Gulf economies, the evidence suggests that monetary authorities in these countries should maintain a close watch on monetary growth as a principal policy guide.     

On the real estate market efficiency

This reseach reexamines the efficiency hypothesis of the real estate market using monthly data and the vector autoregressive (VAR) modelling technique. The tests focus on the causal linkage between real estate returns and a number of relevant financial and economic variables. An eight-by-eight VAR model is estimated using the FPE and the specific gravity criteria, in conjunction with an extensive series of specification tests. The empirical results distilled from system estimations suggest that the real estate market is efficient with respect to available information on the industrial production, the risk premia, the term structure of interest rates, and the monetary base. Movements in these variables are quickly and fully utilized by market agents, perhaps owing to the intensity with which their relationship with stock returns has been discussed in the literature and the popular media. However, the results also suggest the presence of a significant lagged relationship between real estate returns and fiscal policy moves, even when the paths through other potential determinants of these returns are taken into account. Of course, our finding that the fiscal policy measure is useful in predicting stock returns does not necessarily imply that the real estate market is inefficient. At a minimum, inefficiency is revealed only if a careful analysis of the budgetary process can help design a profitable (exploitable) trading strategy.     

The Asymmetric Impact of Monetary Policy on Currency Markets

This study examines whether tightening and easing actions of the Federal Reserve symmetrically influence currency markets. Using daily data on four exchange rates from 1989 to 2001, we find that changes in the Fed's interest rate target are positively related to changes in the value of the dollar. Surprises associated with monetary tightening have a larger announcement effect as compared to monetary easing for the British pound, German mark, and Canadian dollar, whereas the opposite is true for the Japanese yen. The results appear to be driven by the reactions of foreign central banks to Fed actions, the Fed's credibility as a policymaker, and by the change in the Fed's disclosure policy beginning in 1994.     

Does money matter in developing economies? Some evidence from the Solow estimator

Building on the Solow seminal approach for estimating the output elasticity of money stock and on Startz's (1984) implementation of it, this article explores the role of money in the production process in Kuwait, Saudi Arabia, and the United Arab Emirates. Due to lack of necessary data on interest rates in these countries, we use alternative measures of credit constraints as proxies. In contrast to Startz's conclusion for the U.S., our empirical results systematically reveal significant output elasticities of money in each of the three developing countries under study. This is consistent with the neoclassical monetary theory and its incorporation of real money balances as an important input in the production function. Moreover, as the McKinnon-Shaw hypothesis contends, money appears to be complementary to physical capital in the three developing countries. Hence, policy-makers must not hinder the development of their money (financial) markets if they desire to promote economic growth.     

Technical, Allocative and Scale Efficiencies of REITs: An Empirical Inquiry

Abstract:   This paper empirically explores various efficiency aspects of Real Estate Investment Trusts (REITs) in light of their remarkable growth in the 1990s. We find clear evidence of considerable technical inefficiency in REITs, though not much indication for allocative or scale inefficiency. The results also suggest that an increasing number of REITs has been operating under diseconomies of scale since the late 1990s primarily due to the recent wave of consolidation and merger activities. As creatures of the US tax code, REIT's have undergone several changes to their operating status, and our results suggest that the prevalent regulatory environment appears too onerous for the industry and may have contributed to the REITs' poor efficiency performance. In particular, further cuts or total elimination of the dividend restriction on REITs could provide much needed relief and stability in the US real estate market.