bluuebunny/crossref_metadata_2025_split huggingface dataset:
The nexus between stock market and economic activity: an empirical analysis for India
Authors: Chandra Padhan Purna 
Published: September 2007

PurposeAn understanding on the linkages between financial development and economic growth in general and the stock market with economic activity in particular is imperative in emerging economies. The objective of this paper is to find out the causal linkages between stock market and economic activity in India.Design/methodology/approachThe paper applies recently developed Granger non‐causality tests by Toda‐Yamamota, Dolado and Lutkephol (popularly known as the TYDL model) for an empirical exercise.FindingsThe notable finding of the paper is that both the stock price (BSE Sensex) and economic activity (IIP) are integrated of order one, i.e. I (1). The Johansen‐Juselius co‐integration tests suggest the existence of one co‐integrating vector. This rules out spurious relations and suggests the presence of at least one direction of causality. The TYDL model suggests that there is bi‐directional causality between stock price and economic activity during the post‐liberalization period, implying that a well‐developed stock market could enhance economic activity and vice‐versa.Research limitations/implicationsIn the broader framework of financial markets, the presence and role of the stock market is minuscule in the context of India. Despite this, it could play a considerable role in the process of the economic development of the country. However, to analyze the cause and effect relationship between stock market and economic activity, it is essential to analyze the issue in greater detail and depth. The main limitation of the paper is the use of IIP as a proxy for economic activity, which neglects the agricultural sector, being the primary sector in India and also the service sector. This is of course due to the non‐availability of GDP data on a monthly basis. Further, a detailed study on the issue could be highly appreciable from the perspective of policy implications.Originality/valueThe findings of the paper have some valuable implications. It could give some insight for policy makers about the possible linkages between stock market and the economy. Coming to empirical parts, this is perhaps the first paper in the context of India to apply the TYDL model to examine the relationship between stock price and economic activity.
A case of inappropriately targeted vulnerability reduction initiatives in Andhra Pradesh, India?
Authors: Bosher Lee 
Published: September 2007

PurposeThe paper seeks to assess the influence and effectiveness of non‐governmental organisations (NGOs) in targeting and aiding “communities” to reduce their socio‐economic vulnerability to infrequent large‐scale and common everyday crises in coastal Andhra Pradesh.Design/methodology/approachData collection included 342 questionnaires with village inhabitants, local and regional government officials and personnel managing and working for local NGOs. To add qualitative detail to the quantitative data that were collected, 308 “everyday” sociograms, 294 “crisis” sociograms, and 34 semi‐structured interviews were also conducted.FindingsThe research identifies that NGOs in the study areas do not operate in multi‐caste villages, apparently because they prefer to operate in relatively homogeneous single‐caste villages. The implications are that some of the most vulnerable members of society, such as the marginalised “communities” that partially constitute multi‐caste villages, do not receive the support they need.Research limitations/implicationsThis study focuses on a specific region of Andhra Pradesh with the consequence that the findings are potentially very context‐specific. Nonetheless, the findings highlight a fundamental flaw in the way many NGOs operate in this region, through the targeting of perceived “easy cases”, and this is a matter that development agencies should consider and further investigate.Originality/valueThis paper will be of value to researchers and practitioners seeking to gain a better understanding of NGOs and the way some of them operate. The paper recommends a number of ways that the observed inefficiencies could be addressed.
Commonweal vs. free market capitalism: the case of India and China
Authors: Rao Korukonda Appa 
Published: September 2007

PurposeChina and India, increasingly referred to as the world's emerging giants among emerging economies, represent the second and fourth largest economies in the world, respectively. This paper seeks to provide a comparative assessment of these two countries on selected measures on economic growth and social development.Design/methodology/approachThe paper's approach is a discussion, providing a brief introduction to the approach taken by India and China in pursuing economic growth and social welfare measures. The discussion then focuses on the relationship between economic liberalization and social development against a backdrop of relevant concepts and arguments from the literature. Comparative profiles of India and China on select dimensions using data from World Economic Indicators and other sources are provided.FindingsThe paper finds that it is clear that there are areas where India can learn from China and vice versa.Originality/valueThe paper illustrates that these two countries offer a potentially rich and useful canvas for exploring the social implications of free market capitalism.
The exchange rate exposure of UK non‐financial companies
Authors: El‐Masry Ahmed , Abdel‐Salam Omneya , Alatraby Amr 
Published: September 2007

PurposeThe purpose of this paper is to investigate the exchange rate exposure of UK non‐financial companies from January 1981 to December 2001.Design/methodology/approachThe study employs different exchange rate measures and adopts an equally weighted exchange rate. The analyses are conducted at the firm level. All analyses are conducted by regressing the firm's exchange rate exposure coefficients on its size, foreign activity variables and financial hedging proxies over the whole sample period.FindingsThe findings show that a higher percentage of UK non‐financial companies are exposed to exchange rate changes than those reported in previous studies. Generally, the results provide a stronger support for the suggested equally weighted rate as an economic variable, which affects firms’ stock returns. The results also show a high proportion of positive exposure coefficients among firms with significant exchange rate exposure, indicating a higher proportion of firms benefiting from an appreciation of the pound. Finally, the results also indicate evidence that firms’ foreign operations and hedging variables affect their sensitivity to exchange rate exposure.Practical implicationsThis study provides important implications for public policymakers who wish to understand links between policies that affect exchange rates and relative wealth effects.Originality/valueThe empirical results of this study should help investors to examine how common stock returns react to exchange rate fluctuations when making financial decisions, and prove useful for financial managers when measuring exposure to foreign exchange rate changes.
The exchange rate exposure puzzle
Authors: Bartram Söhnke M. , Bodnar Gordon M. 
Published: September 2007

PurposeBased on basic financial models and reports in the business press, exchange rate movements are generally believed to affect the value of nonfinancial firms. In contrast, the empirical research on nonfinancial firms typically produces fewer significant exposures estimates than researchers expect, independent of the sample studied and the methodology used, giving rise to a situation known as “the exposure puzzle”. To this end, this paper aims to systematically analyze the existing empirical evidence of the exposure phenomenon and to attempt to understand the possible source of the exposure puzzle.Design/methodology/approachThe paper provides a survey of the existing research on the exposure phenomenon for nonfinancial firms. A simple model of exposure elasticity is also used to demonstrate the substantial impact of operational hedging on exposure elasticities. Furthermore, the evidence on the nature of firms’ financial derivative usage is considered.FindingsIt is suggested that the exposure puzzle may not be a problem of empirical methodology or sample selection as previous research has suggested, but is simply the result of the endogeneity of operative and financial hedging at the firm level. Given that empirical tests estimate exchange exposures net of corporate hedging, both firms with low gross exposures that do not need to hedge and firms with large gross exposures that employ one or several forms of hedging, may exhibit only weak exchange rate exposures net of hedging. Consequently, empirical tests yield only small percentages of firms with significant stock price exposures in almost any sample.Originality/valueIf firms react rationally to their exposures, most firms will either have no exposure to start with, or reduce their exposure to levels that may be too small to detect empirically. Consequently, the exposure puzzle may not be a problem with methodology or theory, but mainly the result of endogeneity of operative and financial hedging at the firm level.
Hedging the exchange rate risk in international portfolio diversification
Authors: Maurer Raimond , Valiani Shohreh 
Published: September 2007

PurposeThis study seeks to examine the effectiveness of controlling the currency risk for international diversified mixed‐asset portfolios via two different hedge instruments, currency forwards and currency options. So far, currency forward has been the most common hedge tool, which will be compared here with currency options to control the foreign currency exposure risk. In this regard, several hedging strategies are evaluated and compared with one another.Design/methodology/approachOwing to the highly skewed return distributions of options, the application of the traditional mean‐variance framework for portfolio optimization is doubtful. To account for this problem, a mean lower partial moment model is employed. An in‐the‐sample as well as an out‐of‐the sample context is used. With in‐sample analyses, a block bootstrap test has been used to statistically test the existence of any significant performance improvement. Following that, to investigate the consistency of the results, the out‐of‐sample evaluation has been checked. In addition, currency trends are also taken into account to test the time‐trend dependence of currency movements and, therefore, the relative potential gains of risk‐controlling strategies.FindingsResults show that European put‐in‐the‐money options have the potential to substitute the optimally forward‐hedged portfolios. Considering the composition of the portfolio in using in‐the‐money options and forwards shows that using any of these hedge tools brings a much more diversified selection of stock and bond markets than no hedging strategy. The optimal option weights imply that a put‐in‐the‐money option strategy is more active than at‐the‐money or out‐of‐the‐money put options, which implies the dependency of put strategies on the level of strike price. A very interesting point is that, just by dedicating a very small part of the investment in options, the same amount of currency risk exposure can be hedged as when one uses the optimal forward hedging. In the out‐of‐sample study, the optimally forward‐hedged strategy generally presents a much better performance than any types of put policies.Practical implicationsThe research shows the risk and return implications of different currency hedging strategies. The finding could be of interest for asset managers of internationally diversified portfolios.Originality/valueConsidering the findings in the out‐of‐sample perspective, the optimally forward‐hedged minimum risk portfolio dominates all other strategies, while, in the depreciation of the local currency, this, together with the forward‐hedged tangency portfolio selection, would characterize the dominant portfolio strategies.
The response of industry stock returns to market, exchange rate and interest rate risks
Authors: Hyde Stuart 
Published: September 2007

PurposeThis study seeks to investigate the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies: France, Germany, Italy, and the UK.Design/methodology/approachThe paper utilises the methodology of Campbell and Mei (1993) to decompose systematic risks into components attributable to news about future dividends (cash flows), real interest rates and excess returns.FindingsIn addition to significant market risk, the paper finds significant levels of exposure to exchange rate risk in industries in all four markets. Significant levels of interest rate risk are only identified in Germany and France. All three sources of risk contain significant information about future cash flows and excess returns.Research limitations/implicationsFuture research could investigate the extent of exposure in other markets, or investigate whether the findings change at the firm level. Additionally it could be investigated whether recent asset pricing work such as Campbell and Vuolteenaho (2004) can be utilised to investigate this research problem.Practical implicationsThe paper identifies which industry portfolios have significant exposures and decomposes these risks. This information is relevant for investors and portfolio managers, as well as financial management within the firm.Originality/valueThe paper utilises an alternative econometric methodology to investigate the extent of exposure to exchange rate and interest risks in industrial portfolios in four European markets.
The Asian crisis exchange risk exposure of US multinationals
Authors: Verschoor Willem F.C. , Muller Aline 
Published: September 2007

PurposeThis paper aims to increase understanding of the (time‐varying) relationship between exchange rates and stock prices at the individual firm level. Rather than analyzing the impact of exchange rate movements on firm value by regressing multinationals’ stock returns on exchange rate changes, it is proposed to examine the impact of increased exchange rate variability on the stock return volatility of US multinationals by focusing on the 1997 Asian financial turmoil.Design/methodology/approachIn a first step, it is investigated whether the enhanced uncertainty about the future performance of US multinationals active in Asia resulted in an increased stock return variability. The second step separates the impact of increased exchange rate variability on the stock return volatility of US multinationals into systematic and diversifiable risk.FindingsIt is found that the stock return variability of US multinationals increases significantly in the aftermath of the financial turmoil. In conjunction with this increase in total volatility, there is also an increase in market risk (beta) for US multinationals. Moreover, trade‐ and service‐oriented industries appear to be particularly sensitive to these changing exchange rate conditions.Practical implicationsIf the additional risk imparted to exposed firms from increased exchange rate variability is systematic in nature, it will affect the required rate of (equity) return (i.e. investors demand higher returns for holding the firm's shares). Consequently, this effect of exchange rate fluctuations increases the cost of (equity) capital for US multinationals with real foreign operations in the crisis countries.Originality/valueThis paper demonstrates the impact of increased exchange risk on stock return volatility and market risk.
Exchange rate exposure: do size and foreign operations matter?
Authors: El‐Masry Ahmed , Abdel‐Salam Omneya 
Published: September 2007

PurposeThe purpose of this paper is to examine the effect of firm size and foreign operations on the exchange rate exposure of UK non‐financial companies from January 1981 to December 2001.Design/methodology/approachThe impact of the unexpected changes in exchange rates on firms’ stock returns is examined. In addition, the movements in bilateral, equally weighted (EQW) and trade‐weighted and exchange rate indices are considered. The sample is classified according to firm size and the extent of firms’ foreign operations. In addition, structural changes on the relationship between exchange rate changes and individual firms’ stock returns are examined over three sub‐periods: before joining the exchange rate mechanism (pre‐ERM), during joining the ERM (in‐ERM), and after departure from the ERM (post‐ERM).FindingsThe findings indicate that a higher percentage of UK firms are exposed to contemporaneous exchange rate changes than those reported in previous studies. UK firms’ stock returns are more affected by changes in the EQW, and US$ European currency unit exchange rate, and respond less significantly to the basket of 20 countries’ currencies relative to the UK pound exchange rate. It is found that exchange rate exposure has a more significant impact on stock returns of the large firms compared with the small and medium‐sized companies. The evidence is consistent across all specifications using different exchange rate. The results provide evidence that the proportion of significant foreign exchange rate exposure is higher for firms which generate a higher percentage of revenues from abroad. The sensitivities of firms’ stock returns to exchange rate fluctuations are most evident in the pre‐ERM and post‐ERM periods.Practical implicationsThis study provides important implications for public policymakers, financial managers and investors on how common stock returns of various sectors react to exchange rate fluctuations.Originality/valueThe empirical evidence supports the view that UK firms’ stock returns are affected by foreign exchange rate exposure.
Do momentum strategies work? Australian evidence
Authors: Drew Michael E. , Veeraraghavan Madhu , Ye Min 
Published: September 2007

PurposeThe purpose of this paper is to investigate the profitability of momentum investment strategy and the predictive power of trading volume for equities listed in the Australian Stock Exchange.Design/methodology/approachFollowing the Lee and Swaminathan's approach, portfolios on past returns and past trading volume is constructed. In this approach, all stocks are ranked independently on the basis of past returns and past trading volume. The stocks are then assigned to one of five portfolios based on past returns and one of three portfolios based on trading volume over the same period.FindingsA strong momentum effect for the Australian market during the period 1988 through 2002 is observed. Further, momentum plays an important role in providing information about stocks. Past trading volume appears to predict both the magnitude and persistence of price momentum.Research limitations/implicationsSubstantial momentum observed in monthly stock returns has investment implications. Abnormal returns vary from 0.3 to 7 per cent per month in the intermediate horizon.Originality/valueThis study provides an out of sample evidence by examining the relationship between “trading volume” (measured by the turnover ratio) and “momentum” strategies in an Australian setting.
Relation between distress risk, book‐to‐market ratio and return premium
Authors: Zaretzky Kaylene , Kenton Zumwalt J. 
Published: September 2007

PurposeEarlier research found that firms with the highest distress risk have low book‐to‐market (B/M) ratios and low returns. This paper aims to examine the robustness of those's results and provide further evidence that high distress‐risk firms do not enjoy the same high returns earned by high B/M firms and that distress risk is unlikely to explain the Fama and French high‐minus‐low (HML) B/M factor.Design/methodology/approachA distress‐risk measure, distressed‐minus‐solvent (DMS), is calculated and a range of zero investment distress‐risk trading strategies is investigated. Value‐ and equal‐weighted portfolios are examined both with negative book‐equity firms and without. These most distressed firms have low or negative B/M values and would either not be included in the Fama and French sample or included in the low B/M portfolio.FindingsThe paper finds that the DMS factor is negative and significant, and none of the zero investment strategies earns significantly positive returns.Research limitations/implicationsThe findings suggest that exposure to distress risk does not earns investors a positive risk premium. It appears that over the period examined, market inefficiencies drive the market value and returns of high distress‐risk firms.Originality/valueThe distress‐risk premium is shown to be negative and, therefore, cannot be driven by bankruptcy risk alone. The negative premium is not consistent with a financial distress explanation for the Fama and French HML factor.
Co‐movement of Bangladesh stock market with other markets
Authors: Al Asad Bin Hoque Hafiz 
Published: September 2007

PurposeThe purpose of this paper is to explore dynamics of stock price movements of an emerging market, Bangladesh with that of USA, Japan and India.Design/methodology/approachThe long‐term relationships among the markets are analyzed using the Johansen and Juselius multivariate cointegration approach. Short‐run dynamics are captured through vector error correction models. Further investigation on short‐run dynamics is carried out through impulse response analysis.FindingsThere is evidence of cointegration among the markets demonstrating that stock prices in the countries studied here share a common stochastic trend. Impulse response analysis shows that shocks to the US market do have an impact on the Bangladesh market. The evidence of Bangladesh stock market responding to shocks in the Indian market is weak. Shocks to the Japanese market do not generate a response in the Bangladesh market.Research limitations/implicationsAs these markets share a common stochastic trend no diversification benefit is possible from cross‐border investments. Investors could further enhance their understanding of market behaviour by comparing the observations here with those of studies that adopt technical analysis, fundamental analysis and consider financial anomalies.Originality/valueThe evidence of cointegration and the short run dynamic relationship help investors in making efficient investment decisions in the Bangladesh stock market.
A review of capital asset pricing models
Authors: Galagedera Don U.A. 
Published: September 2007

PurposeThe main aspect of security analysis is its valuation through a relationship between the security return and the associated risk. The purpose of this paper is to review the traditional capital asset pricing model (CAPM) and its variants adopted in empirical investigations of asset pricing.Design/methodology/approachPricing models are discussed under five categories: the single‐factor model, multifactor models, CAPM with higher order systematic co‐moments, CAPM conditional on market movements and time‐varying volatility models.FindingsThe paper finds that the last half‐century has witnessed the proliferation of empirical studies testing on the validity of the CAPM. A growing number of studies find that the cross‐asset variation in expected returns cannot be explained by the systematic risk alone. Therefore a variety of models have been developed to predict asset returns.Research limitations/implicationsThere is no consensus in the literature as to what a suitable measure of risk is, and consequently, as to what is a suitable measure for evaluating risk‐adjusted performance. So the quest for robust asset pricing models continues.Originality/valueFrom its beginning to its possible demise the paper reviews the history of the CAPM assuring that we are all up to speed with what has been done.