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Testing Random Walk Behavior of Currency Returns for African Countries
--Emmanuel Anoruo and Habtu Braha
This paper investigates the random walk behavior of currency returns for 15 African countries, namely, Ethiopia, Gambia, Ghana, Kenya, Madagascar, Mali, Mauritius, Morocco, Nigeria, Rwanda, Sierra Leone, South Africa, Tanzania, Uganda, and Zambia. In particular, the paper applies the nonparametric variance-ratio tests proposed by Wright (2000). The two important findings that emerge from this study are: first, contrary to most of the earlier studies on this issue, this study finds evidence against random walk behavior for currency returns of all sample countries; second, the rejection of the null hypothesis of random walk suggests that shocks to the currency return series are temporary. This finding implies that foreign exchange markets of the sample countries are inefficient and present opportunities to aggressive investors who seek high rates of return irrespective of the level of risk involved.
© 2015 IUP. All Rights Reserved.
An Analysis of Lead-Lag Relationship Between Stock Returns
Using Spectral Methods
--Avishek Bhandari and Bandi Kamaiah
This paper examines the relationship between BSE Sensex and three other developed markets in the frequency domain. Cross-spectral methods, which are important in discovering and interpreting the relationships between economic variables, are used to analyze the relationships between different price series. Cross-spectral methods, developed using Fourier techniques, give valuable information regarding the correlation structure in the frequency domain. This paper applies these methods to study the lead-lag relationship between BSE Sensex and other international markets. The results show no significant co-movement of Indian stock prices with developed market prices at lower frequencies; and in the long run, the developed stock markets seem to lead Indian market. However, in the short run, some evidence of behavioral similarities is observed.
© 2015 IUP. All Rights Reserved.
What Determines Stock Returns? – A Comparative Study of the Effects
of Fiscal, Monetary and Trade Variables
--Ronit Mukherji
The present paper tries to analyze the macroeconomic determinants of stock returns in a relative context using monthly data from 1999 to 2013 for a panel of emerging economies, India and China. Using modern panel data time series techniques, the paper tries to examine the relative impact of industrial production, inflation, interest rate and balance of trade on stock market returns. Using the superior Fully Modified Ordinary Least Square (FMOLS) method, it is found that inflation and balance of trade are the most important factors affecting the stock returns of India, China and the panel, followed by industrial production and rate of interest.
© 2015 IUP. All Rights Reserved.
An Analysis of the Determinants of FDI Inflows:
The Case of the Dominican Republic
--Chandini Sankaran
Current research indicates that for many developing countries, Foreign Direct Investment (FDI) inflows provide a major source of external financing, capital and technology transfer from developed countries. The Dominican Republic received $34.9 tn of FDI between 1993 and 2012. The objective of this paper is to understand the drivers of inward FDI into the Dominican Republic. The empirical analysis reveals that market size, infrastructure, trade openness, natural resource extraction, secondary education and labor force participation rate are statistically significant factors in attracting FDI inflows. Policy recommendations include increasing the reliability of electricity supply, outward-oriented trade policies, and investments in infrastructure, transportation networks, communication as well as education at the secondary level. Other recommendations include a more friendly business environment with increased credit availability, low inflation and controlled debt. Channeling FDI into sectors with high value-added outputs will improve the standard of living in the Dominican Republic.
© 2015 IUP. All Rights Reserved.
Early Warning System of Currency Crisis:
Insights from Global Financial Crisis 2008
--Inderjit Kaur
This paper examines the early warning system of currency crisis in the context of Global Financial Crisis 2008. The monthly data has been taken for the period 2005- 2009 for leading indicators related to external exposure (short-term debt/reserves and growth of foreign exchange reserves), external competitiveness (REER overvaluation, current account as percentage of GDP, trade balance as percentage of GDP, and trade balance as percentage of growth rate in GDP) and domestic real and public sector (real GDP growth rate, inflation rate, and growth in M1 or M2 to growth in reserves) for a sample of randomly selected seven countries. The binomial panel probit model and ordered probit panel model have been applied to model currency crisis. The forecasting ability of the two models are compared in which one model takes into account the post-crisis bias. It is observed that during the crisis, external exposure and external competitiveness variables were significant predictors, whereas domestic economic indicators were not the leading indicators. The short-term debt to reserves has been the most important leading indicator during this period. Further, taking post-crisis bias into account improves the signal-to-noise ratio of the model.
© 2015 IUP. All Rights Reserved.
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