MACROECONOMIC UNCERTAINTY AND CONDITIONAL STOCK MARKET VOLATILITY IN SOUTH AFRICA*

This paper analyses how systematic risk emanating from the macroeconomy is transmitted into stock market volatility using augmented autoregressive Generalised Autoregressive Conditional Heteroscedastic (AR‐GARCH) and vector autoregression (VAR) models. Also examined is whether the relationship between the two is bidirectional. By imposing dummies for the 1997‐1998 Asian and the 2007‐2009 sub‐prime financial crises, the study further analyses whether financial crises affect the relationship between macroeconomic uncertainty and stock market volatility. The findings show that macroeconomic uncertainty significantly influences stock market volatility. Although volatilities in inflation, the gold price and the oil price seem to play a role, it is found that volatility in short‐term interest rates and exchange rates are the most important, suggesting that South African domestic financial markets are increasingly becoming interdependent. Finally, the results show that financial crises increase volatility in the stock market and in most macroeconomic variables, and, by so doing, strengthen the effects of changes in macroeconomic variables on the stock market.     

Impact of copula choice on the modeling of crop yield basis risk

A number of problems in agricultural economics involve modeling joint distributions for which the assumption of multivariate normality may not be warranted. Yet, very little work has been conducted evaluating competing methods for modeling joint dependence. We develop a simulation framework to evaluate the bias and efficiency impacts of copula choice in the context of evaluating county‐to‐farm basis risk. The results suggest significant differences in performance across various copulas and approaches. The findings have important implications for risk analysis, insurance, and policy modeling problems in agriculture regarding the selection of method to model dependence among random variables.     

Law and credit constraints in transition economies1

Using a survey of over 4,000 firms in 21 transition economies, this paper investigates how legal extensiveness (law on the books) and legal effectiveness (law in practice) affect availability of bank finance. Our findings suggest that both law on the books and law in practice are important, but that they impact firms of different sizes differently. Small firms appear to be the most credit constrained in countries with weak creditor rights and with weak contract enforcement, while large firms are the most credit constrained in countries with weak courts and unclear and inconsistent laws pertaining to firms’ business operations.     

The Persistence of Dominant‐Firm Market Share: Raising Rivals' Cost on the New York Stock Exchange

To explain the persistence of dominant New York Stock Exchange (NYSE) market share in stock trading of listed securities from 1992 to 2002, we develop a dominant‐firm price leadership model and hypothesize that NYSE specialists raised the costs of rival market makers. The model predicts that natural and induced cost advantages will determine the NYSE's market share vis‐à‐vis the regional exchanges, electronic trading systems, and NASDAQ dealers. Empirically, NYSE market share increases with economies of scale and scope, abnormal price volatility, high asymmetric information, and with trading practices that raise rivals' costs, such as failure to display limit orders that bettered the existing quotes.     

COLLUSION AND PREDATION UNDER THE CONDITION OF STOCHASTIC BANKRUPTCY

In this paper, on the basis of the framework of repeated games, we consider the strategic interaction between firms that may face financial constraints and go into bankruptcy when they earn low profit. We demonstrate that under asymmetric information concerning the financial constraints of the rival firm, firms adopt a pricing pattern wherein they switch to high (or collusive) prices after maintaining low prices for some periods. There are always such predatory pricing strategies sustained as equilibria when firms are sufficiently patient. We also show that the set of feasible and individual rational payoffs becomes narrower than that of the ordinal repeated games.     

The determinants of service exports from Central and Eastern Europe

The transition economies of Central and Eastern Europe (CEE) have become important exporters of many types of services to Western Europe. We identify the sources of CEE’s advantages over competing exporters, such as India, China and Brazil, using disaggregated data on service exports and a novel estimation technique for the gravity equation. Our results indicate that the importance of geographical distance varies substantially across types of service exports. Geography is important for exports of construction services, but it has a negligible impact on computer‐related services. However, the relative quality of legal institutions influences trade across a broad range of service categories. The results demonstrate that aggregating services that are not homogeneous could conceal important differences in the effects of geographical distance and other variables on the pattern of service trade.     

Informed arbitrage with speculative noise trading

We consider speculative noise trading when some naïve speculators trade on noise as if it were information [Black, F., 1986. Noise. Journal of Finance 41, 529–543]. We examine the optimal trading strategy of an informed investor who faces such naïve speculators in the market. We find that the informed investor trades aggressively on her information and takes large, opposite positions against the naïve speculators. The trading volume is thereby drastically magnified. While such speculative noise trading enhances liquidity, it makes prices less efficient. The overall dynamic patterns that emerge from our model are most consistent with the evidence for interday variations in volume, volatility, and transaction costs.     

ON THE ROBUSTNESS OF RANGE‐BASED VOLATILITY ESTIMATORS

We empirically examine Parkinson's range‐based volatility estimate in the federal funds market, which is unique because institutional regulations create a predictable pattern in interday volatility. We find that range‐based volatility estimates and standard deviations produce the expected volatility pattern. We also find that at trading pressure points where microstructure noise should be greatest, range‐based estimates are less than the standard deviations. Thus, we support the argument that range‐based volatility estimates remove the upward bias created by microstructure noise. We find that the Parkinson method is the most efficient range‐based volatility measure among a set of alternates in this market.     

Is Gold a Hedge or a Safe Haven? An Analysis of Stocks,Bonds and Gold

Is gold a hedge, defined as a security that is uncorrelated with stocks or bonds on average, or is it a safe haven, defined as a security that is uncorrelated with stocks and bonds in a market crash? We study constant and time‐varying relations between U.S., U.K. and German stock and bond returns and gold returns to investigate gold as a hedge and a safe haven. We find that gold is a hedge against stocks on average and a safe haven in extreme stock market conditions. A portfolio analysis further shows that the safe haven property is short‐lived.     

重大保险风险测试及其对再保险定价的影响

2010年我国保险行业实施《企业会计准则解释第2号》后,在保费收入的会计确认上发生了重大变化,要求保险公司对签订的再保险保单进行重大保险风险测试。重大保险风险测试对再保险保单的影响重大,本文主要阐述重大保险风险测试问题的提出以及主要测试方法,并从实务角度出发,分析我国的重大保险风险测试规定对临时再保险、非比例合约再保险和比例合约再保险等再保险保单定价的影响。