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Article
Publication date: 28 November 2024

Kalu O. Emenike

Using ABA research design and daily indices from South Africa, Eurozone, Japan and the United States of America, this study evaluates the interaction between equity index futures…

66

Abstract

Using ABA research design and daily indices from South Africa, Eurozone, Japan and the United States of America, this study evaluates the interaction between equity index futures and spot markets before; during and after the COVID-19 pandemic. The results show evidence of cointegration between the equity futures and spot markets before, during and after the COVID-19 pandemic, a unidirectional causal relationship from the equity spot to the futures markets before and after the COVID-19 era, and bidirectional causality between the equity spot and futures markets during the COVID-19 pandemic, except for the South African markets. The results also show evidence of more spikey volatility during the COVID-19 pandemic era than was the case before and after the pandemic and the existence of bidirectional volatility transmission between the markets. The magnitude of transmission was stronger from the spot to futures markets during the COVID-19 pandemic era. Overall, the results suggest that the interaction between equity futures and spot markets varies according to the prevailing economic condition and the level of development of the markets.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1229-988X

Keywords

Available. Open Access. Open Access
Article
Publication date: 14 March 2022

Kalu O. Emenike

The importance of sovereign bond as a source of financing revenue deficit, benchmarking for corporate bonds and debt management in Africa, calls for continual monitoring of its…

1062

Abstract

The importance of sovereign bond as a source of financing revenue deficit, benchmarking for corporate bonds and debt management in Africa, calls for continual monitoring of its volatility dynamics. This study evaluates the nature of sovereign bond volatility interaction between African countries using bivariate BEKK-GARCH (1, 1) model. Based on a sample of eight African countries, the results show evidence of unidirectional volatility spillover from Morocco sovereign bond to Egypt sovereign bond. Next, the results show absence of volatility interaction between Ghana and Nigeria sovereign bonds. The results further show the existence of bidirectional volatility transmission between Uganda and Kenya. Finally, the results indicate evidence of bidirectional volatility interaction between Botswana and South Africa. Overall, the results show existence of full interaction between Uganda–Kenya and Botswana–South Africa sovereign bond returns, partial interaction between Egypt and Morocco sovereign bond returns and no interaction between Ghana and Nigeria sovereign bonds markets. Thus, these results provide valuable implications for sovereign and corporate credit risk management, as well as strategy for monitoring and minimising negative effect of sovereign bond volatility spillover in Africa.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. 30 no. 4
Type: Research Article
ISSN: 1229-988X

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Article
Publication date: 27 June 2024

Suhaib Al-Khazaleh, Dr Nemer Badwan, Ibrahim Eriqat and Zahra El Shlmani

The purpose of this study is to evaluate the linkage between stock markets in Middle Eastern countries before and during the COVID-19 pandemic by using daily and monthly data sets…

104

Abstract

Purpose

The purpose of this study is to evaluate the linkage between stock markets in Middle Eastern countries before and during the COVID-19 pandemic by using daily and monthly data sets for the period from 2011 to 2021.

Design/methodology/approach

The multivariate BEKK-GARCH model was computed to evaluate the existence of non-linear linkage among Middle Eastern stock markets. A correlation approach was used in this study to determine the type of linear connectivity between Middle Eastern stock markets. The study used monthly and daily data sets covering the years 2011 to 2021 to investigate the linkage between stock returns and the volatility spillover between the stock markets in Palestine, Jordan, Syria and Lebanon, both before and during COVID-19. To understand the types of relationships between markets before and during COVID-19, the daily data set was split into two periods.

Findings

Results from the pre-COVID-19 suggest that the Syria stock market is not related to any stock market in the Middle East markets; the Palestine and Lebanon stock markets exhibit a weak relationship, but Jordan and Palestine stock markets are strongly linked. Conversely, results from COVID-19 evince a very strong bidirectional volatility spillover between Middle East stock markets. Overall, the results indicate the existence of increased linkage during the COVID-19.

Research limitations/implications

The data collection on a daily and monthly basis, both before and during COVID-19, presents certain limitations for the paper. Another limitation is that the data cannot be generalized to all other Middle Eastern countries; rather, the conclusions drawn can only be applied to these four countries. This is especially true if the scholars collected most of the necessary data but were unable to obtain certain data for various reasons.

Practical implications

These findings have implications for risk management, market regulation and the growth of local stock markets. Facilitating the growth of smaller, more specialized markets to improve integration with other Middle Eastern markets is one of the goals of the domestic stock market development policy. To ensure financial stability, Middle Eastern stock market linking policies should consider spillover risk and take steps to minimize it. Enhancing the range of investment opportunities accessible to shareholders and functioning as confidential risk-sharing mechanisms to facilitate improved risk management in Middle Eastern stock markets will not only significantly influence the mobilization of private capital to promote investment and local economic growth but also lay groundwork for integrated market platforms.

Originality/value

This paper adds to the body of literature by demonstrating the nature of the connections between these small markets and the larger markets in the Middle East region. Information from the smaller markets provides institutional insights that enhance the body of existing research, guide the formulation of evidence-based policies and advance financial literacy in these markets. This study contributes by comparing data from different stock markets to better understand the type and strength of the link and relationship between Middle Eastern stock markets, as well as any underlying or reinforcing factors that might have contributed to the relationship and the specific types of links that these markets shared prior and during COVID-19.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. 17 no. 2/3
Type: Research Article
ISSN: 1754-4408

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Article
Publication date: 29 November 2018

Kalu Onwukwe Emenike

The purpose of this paper is to evaluate selected West African currencies/US dollar exchange rates for the evidence of volatility spillover. Specifically, the paper examines West…

380

Abstract

Purpose

The purpose of this paper is to evaluate selected West African currencies/US dollar exchange rates for the evidence of volatility spillover. Specifically, the paper examines West African CFA franc, Gambian dalasi and Nigerian naira exchange rates in relation to the USD, for any evidence of shock and volatility spillover.

Design/methodology/approach

The author employs multivariate GARCH (1,1)–BEKK model which enables the evaluation of the interaction within the volatility of two or more series because of its capability to detect volatility spillover among time series observations, as well as the persistence of volatility within each series.

Findings

The major findings of this study are as follows: there is evidence of volatility clustering in West African CFA franc, Gambian dalasi and Nigerian naira exchange rates in relation to the USD. There is evidence of bi-directional shock and volatility spillover between the Nigerian naira and West African CFA franc/USD exchange rates, and uni-directional shock spillover from the Gambian dalasi to the West African CFA franc/USD exchange rates. There is, however, no evidence of exchange rate shock and volatility spillover between Nigerian naira and Gambian dalasi.

Originality/value

Although considerable literature exists on the volatility of exchange rate in West Africa and comparative analysis of exchange rates volatility in few countries of West Africa, there is absence of empirical studies on exchange rate volatility spillover among countries in the region. Since containing exchange rate volatility is one of the major objectives of monetary policy, understanding the nature and direction of exchange rate volatility spillover would propel formulation exchange rate policies that would minimise exchange rate uncertainty and entrench sustainable development. In addition, the nature of exchange rate volatility spillover between West African countries would provide basis for international traders and foreign portfolio investors to develop effective strategies for hedging against exchange rate shocks that are propagated across countries by designing appropriate risk management techniques.

Details

International Journal of Emerging Markets, vol. 13 no. 6
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 11 November 2021

Abdul Rashid and Mohammad Basit

This paper aims to explore the empirical determinants of exchange-rate volatility (ERV) in selected Asian economies, namely, Bangladesh, China, India, Indonesia, Malaysia and…

830

Abstract

Purpose

This paper aims to explore the empirical determinants of exchange-rate volatility (ERV) in selected Asian economies, namely, Bangladesh, China, India, Indonesia, Malaysia and Pakistan. Specifically, it examines how the volatility of foreign reserves, government spending, industrial production, gold prices and terms of trade affect monthly ERV during the examined period.

Design/methodology/approach

The authors carry out the empirical analysis by using monthly data for the period January 1997–March 2019. First, the volatility of the underlying variables is measured based on the conditional variances obtained by estimating the univariate (generalized) autoregressive conditional heteroskedasticity [(G)ARCH] model for each variable during the study period. Next, the autoregressive conditional heteroscedasticity (ARCH)-Lagrange multiplier test is applied to ensure that there are no remaining ARCH effects in the residuals. Finally, the multivariate autoregressive-moving average-GARCH (1, 1) models are estimated to examine whether and how the volatility of the underlying variables affects ERV.

Findings

The results reveal that the current period volatility of exchange rates is significantly affected by ERV in the previous period in all selected countries. The results also indicate that the volatilities of the underlying macroeconomic variables are quite differently related to ERV in examined Asian countries. Foreign-reserve volatility (VFXRES) has negative and significant impacts on ERV in Bangladesh, China and Malaysia. Government-spending volatility is negatively related to ERV in India, whereas it is positively related to ERV in all other examined countries. The results also suggest that although terms-of-trade volatility reduces ERV in both Bangladesh and Pakistan, it amplifies ERV in the remaining examined countries. However, gold-price volatility (VGOLDP) significantly, positively contributes to ERV in Bangladesh, Indonesia and Malaysia. On the contrary, the higher volatility in industrial production (VIPI) results in lower ERV in Indonesia and Pakistan, whereas it increases ERV in China, India and Malaysia.

Practical implications

The findings have several important policy implications. First, the findings suggest that both Bangladesh and Malaysia should keep an adequate level of foreign reserves to stabilize their foreign exchange rates. Second, as government-spending volatility has a vital role in determining ERV, it is necessary to bring sustainability and continuity in government expenditures. Bangladesh and Pakistan can stabilize their foreign exchange rates by making exports more competitive, viable and accessible.

Originality/value

This paper significantly contributes to the existing literature by exploring how the behavior of unexpected variations in the factors determining exchange rates affects ERV in selected Asia countries. Most of the published studies have examined the determinants of exchange rates by considering the macroeconomic variables at their levels. Departing from the existing studies, this paper significantly relates the volatility (second moment) of exchange rate determinants to the behavior of ERV. Further, this paper provides firsthand empirical evidence on this issue for the selected Asian economies.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. 15 no. 1
Type: Research Article
ISSN: 1754-4408

Keywords

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