On the Role of Futures Trading in Spot Market Fluctuations: Perpetrator of Volatility or Victim of Regret?

We examine the role of index futures trading in spot market volatility. We use the exponential generalized autoregressive conditional heteroskedasticity (EGARCH) approach to measure volatility, analyze causality and feedback relations between volatilities in the spot and futures markets, and test various hypotheses in the context of a multivariate model that incorporates other macrostate variables. Our empirical results suggest index futures trading may not be blamed for the observed volatility in the spot market. Rather, we find stronger and more consistent support for the alternative posture that volatility in the futures market is an outgrowth of a turbulent cash market. We use the regret (cognitive dissonance) theory to explain our results.     

Labor unemployment risk and firm risk

This paper examines the effect of labor unemployment risk on firm risk. Using unemployment insurance benefits as a proxy for unemployment risk, we find an economically significant positive relation between unemployment risk and firm risk. This positive relation is more pronounced for firms that are more labor-intensive, have a higher layoff propensity and are more financially constrained. While existing literature that employs corporate policy measures such as debt and cash holdings suggests an opposite relationship, our paper presents evidence that the effects stemming from earnings management, earnings quality and reporting quality appear to dominate.     

Cointegration of U.S. budget and current account deficits: Twins or strangers?

In this paper the authors employ the cointegration approach to explore empirically the existence of a possible long-run equilibrium relationship between the U.S. budget deficits and the current account deficits. This study uses annual nominal data in levels for the postwar period 1946–1988. Both the DW and the ADF tests confirm that the two deficits are not cointegrated. It implies that the two deficits have no possibility of reverting to a long-run equilibrium relation.     

Can innovation shocks determine CO2 emissions (CO2e) in the OECD economies? A new perspective

ABSTRACT

This study has attempted to address prior knowledge gaps in the environmental economics literature by integrating the innovation shocks into the Environment Kuznets Curve (EKC) equation for twenty-six OECD economies using data from 1990 to 2014. Foreign direct investment (FDI), exports (EXP), renewable energy consumption (REC), and GDP per capita were included as control variables. The results from multiple empirical analyses indicated that positive shocks to innovation improve, but the negative shocks disrupt environmental quality. Data analyses also showed that a positive correlation exists between income per capita of OECD economies. From the negative coefficient of income per capita (squared) and the existence of a negative nexus between FDI and CO2e, both the EKC and the Pollution Halo Hypothesis (PHH) were confirmed in sampled economies, respectively. The paper offers empirical support for the favourable impacts of REC on the quality of the environment and calls for the adoption of innovation shocks as a policy instrument to formulate better environmental policies for a sustainable future.     

Does remittance fuel labour productivity in Bangladesh? The application of an asymmetric non-linear ARDL approach

Bangladesh, a labour-abundant country, is finally learning to reap gains from her labour abundance. The historical under-optimized capital–labour ratio of Bangladesh is slowly moving towards its optimum as the migration of its labour force and consequent inflow of remittance strategically converts its abundant labour into capital. Though the fear that remittance as an alternative source of earning may result in Dutch disease for existing family members; annual data for 1982–2013 and through applying standard testing methodologies, our empirical findings suggest that such a fear is not valid since remittance flow significantly improves domestic labour productivity in Bangladesh in the long run.     

Institutional ownership,cross-shareholdings and corporate cash reserves in Japan

Cross-country studies document a negative relation between corporate governance and cash holdings. In contrast, this relation is found to be positive in the United States. In this paper, we examine the case of Japanese firms. Using institutional ownership and cross-shareholdings as the main governance variables, we show that better governance is associated with higher cash balances as in the United States. The reason is that better-governed firms make better investment decisions. Their investments are not driven by excess liquidity and result in higher profitability and higher firm valuation. Overall, our findings indicate that management profligacy is a bigger concern to shareholders than management propensity to hoard cash because of risk aversion.     

Direct and Spillover Effects of Unconventional Monetary and Exchange Rate Policies

This paper explores the direct effects and spillovers of unconventional monetary and exchange rate policies. We find that official purchases of foreign assets have a large positive effect on a country’s current account that diminishes considerably as capital mobility rises. There is an important additional effect through the lagged stock of official assets. Official purchases of domestic assets, or quantitative easing (QE), appear to have no significant effect on a country’s current account when capital mobility is high, but there is a modest positive impact when capital mobility is low. The effects of purchases of foreign assets spill over to other countries in proportion to their degree of international financial integration. We also find that increases in US bond yields are associated with increases in foreign bond yields and in stock prices, as well as with depreciations of foreign currencies, but that all of these effects are smaller on days of US unconventional monetary policy announcements. We develop a theoretical model that is broadly consistent with our empirical results and that highlights the potential usefulness of domestic unconventional policies as responses to the effects of foreign policies of a similar type.