Impact of Stochastic Correlation on CDO Pricing
-- Ravindran Ramasamy, Ganisen Sinnasamy
and Mohd Hanif Mohd Helmi
In CDO pricing, the cross-correlation coefficients play a significant role as it is the sole parameter used. Criticisms are levelled
around two features of these correlation coefficients: a dependable data is not available to compute the correlation coefficients
between reference obligors; and the same coefficients are used across firms and over the entire life of the CDO while computing the
survival, default and hazard probabilities. This strong assumption creates correlation smile and the resultant price is a crude approximation.
In this paper, we have attempted to capture the sensitivity of the correlation coefficients in the pricing of CDOs and have also attempted
to relax the assumption of the constant correlation coefficients by taking simulated random cross-correlation coefficients to study the
effect on pricing. Our results show that the cross-correlation coefficients affect only the premium leg payments and play insignificant role
in default leg payment, accrued premium and default losses. When correlation coefficient increases, the premium payable also
increases, but at a decreasing rate. If stochastic correlation coefficients are applied, the premium leg and default amounts show a stable
pattern, while default payment slightly increases when compared to fixed correlation coefficients.
© 2011 IUP. All Rights Reserved.
Consideration of Sources of Information as Selection Criteria
in Mutual Fund Purchase: A Comparative Study of Retail and
Non-Retail Investors
-- Mohit Gupta and Subhash Chander
Empirical evidence has found sources of information as an important determinant for mutual fund purchase or
selection. Several researchers have found relative importance of sources of information for the retail investors.
However, the literature is scanty with respect to
non-retail investors. This study presents a comparative analysis of retail and
non-retail mutual fund investors with respect to sources of information in the context of their selection of various mutual funds for their
investments. Primary data collected from 400 retail and 50
non-retail investors, randomly selected from the cities under
survey, was used to assess the components of sources of information. Factor analytic technique resulted in four
components: advertisement and shows, data and
information, advice and recommendations, and published returns. Inferential statistics on Anderson
Rubin (AR) factor scores depicts the significant difference between retail and
non-retail mutual fund investors with respect to
`advertisement and shows' and `published returns'. The study is an addition to the existing literature and may help
in improving the strategies of asset management companies.
© 2011 IUP. All Rights Reserved.
Relationship Between Sensex and Some Selected Stock
Price Indices of the Asia-Pacific Region
-- Som Sankar Sen
This paper investigates the short-run and long-run relationships between Indian stock market (represented by Sensex) and
stock indices of major countries in the Asia-Pacific region. The results reveal significant correlation between Sensex and other
indices. Moreover, the Granger causality test reveals unidirectional causality from the indices of the so-called Asian Tigers to Sensex.
Furthermore, the Johansen cointegration test clearly shows that there exists a long-run relationship between Sensex and stock indices of
these major countries.
© 2011 IUP. All Rights Reserved.
Market Reaction to Bonus Issues and
Stock Splits in India: An Empirical Study
-- Koustubh Kanti Ray
Corporate events have numerous effects on the stock market, as found by several research studies in the world. In this regard, the
aim of this paper is to test the semi-strong form of efficiency in the Indian equity market, following an event study approach. The
events considered in this paper are bonus issues and stock splits that took place in the market from 1996 to 2008. These events are tested
for abnormal returns and liquidity. The data selected is free from the impact of confounding events. -30 to +30 days investigation
window is taken for all the events to test the abnormal returns and the change in liquidity. The results suggest that the Indian market reacts
to the stock split announcements but not to bonus issues, and the change in liquidity is significant for stock splits at 1% significance
level, whereas with 5% level of significance both bonus issues and stock splits show significant change in liquidity from pre- to
post-event period.
© 2011 IUP. All Rights Reserved.
Next Day Stock Market Forecasting:
An Application of ANN and ARIMA
-- Nitin Merh, V P Saxena and Kamal Raj Pardasani
Data mining techniques are gaining an important place in finance as the size of the data is increasing exponentially with every
passing day and the accuracy with which the data should be analyzed is very important. In this paper, an attempt is made to develop
two models, one using three-layer feed-forward back propagation Artificial Neural Network (ANN 4-4-1) and the other
using Autoregressive Integrated Moving Average (ARIMA 1, 1, 1) for forecasting the future index value of Sensex (BSE 30). Simulations
have been done using prices of daily open, high, low and close of Sensex. These are chosen as input data values and output is the
forecasted closing price of Sensex for next day. Convergence and performance of models have been evaluated on the basis of the
simulation results.
© 2011 IUP. All Rights Reserved.
Effective Real Exchange Rate Volatility and Economic Growth
in Sub-Saharan Africa: Evidence from Panel Unit Root
and Cointegration Tests
-- Houdou Ndambendia and Ahmed AL-Hayky
In this paper, we investigate the long-run relationship between effective real exchange rate volatility and economic growth in 15
Sub-Saharan African (SSA) countries using panel unit root and cointegration tests over the period
1980 to 2004. In addition, we use fully modified OLS (FMOLS), developed by Pedroni (2000), to estimate the long-run relationship.
We find that real exchange rate volatility negatively affects economic growth when the ratio of domestic credit to GDP is below the
threshold value, which is 57%. Thus, the less financially developed an economy is, the more adversely it is affected by the volatility of effective
real exchange rate. In this respect, debate around the reforms of financial system and the choice of exchange rate regime consistent with
the financial development in the region re-emerges. These reforms include the improvement of credit policy and the development
of financial infrastructure like financial instruments, financial regulation and stock exchange, among others.
© 2011 IUP. All Rights Reserved.
|
