Mehmet Balcilar, Rangan Gupta and Charl Jooste
The purpose of this paper is to study the evolution of monetary policy uncertainty and its impact on the South African economy.
Abstract
Purpose
The purpose of this paper is to study the evolution of monetary policy uncertainty and its impact on the South African economy.
Design/methodology/approach
The authors use a sign restricted SVAR with an endogenous feedback of stochastic volatility to evaluate the sign and size of uncertainty shocks. The authors use a nonlinear DSGE model to gain deeper insights about the transmission mechanism of monetary policy uncertainty.
Findings
The authors show that monetary policy volatility is high and constant. Both inflation and interest rates decline in response to uncertainty. Output rebounds quickly after a contemporaneous decrease. The DSGE model shows that the size of the uncertainty shock matters – high uncertainty can lead to a severe contraction in output, inflation and interest rates.
Research limitations/implications
The authors model only a few variables in the SVAR – thus missing perhaps other possible channels of shock transmission.
Practical implications
There is a lesson for monetary policy: monetary policy uncertainty, in isolation from general macroeconomic uncertainty, often creates unintended adverse consequences and can perpetuate a weak economic environment. The tasks of central bankers are incredibly difficult. Their models project output and inflation with relatively large uncertainty based on many shocks emanating from various sources. It matters how central bankers react to these expectations and how they communicate the underlying risks associated with setting interest rates.
Originality/value
This is the first study that looks into monetary policy uncertainty into South Africa using a stochastic volatility model and a nonlinear DSGE model. The results should be very useful for the Central Bank as it highlights how uncertainty, that they create, can have adverse economic consequences.
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Mehmet Balcilar, Gozde Cerci and Riza Demirer
The purpose of this paper is to examine the international diversification benefits of Islamic bonds (Sukuk) for equity investors in conventional stock markets. The authors compare…
Abstract
Purpose
The purpose of this paper is to examine the international diversification benefits of Islamic bonds (Sukuk) for equity investors in conventional stock markets. The authors compare the diversification benefits of these securities with their conventional alternatives from advanced and emerging markets. Compared to conventional bonds, Sukuk are backed by tangible assets and carry both bond and stock-like features. Furthermore, the Sharia-based limitations limit the risk in these securities as a result of ethical investing rules. The regime-based model provides insight to possible segmentation (or integration) of these securities from global markets during different market states.
Design/methodology/approach
Risk spillover effects across conventional and Islamic stock and bond markets are examined using a Markov regime-switching GARCH model with dynamic conditional correlations (MS-DCC-GARCH). Weekly return series for conventional (advanced and emerging) and Islamic stock and bond indices are examined within a regime-dependent specification that takes into account low, high, and extreme volatility states. The DCC are then used to establish alternative diversified portfolios formed by supplementing conventional and Islamic equities with conventional and Islamic bonds one at a time.
Findings
Asymmetric shocks are observed from conventional stocks and bonds into Islamic bonds (Sukuk). Compared to emerging market bonds, Sukuk are found to display a different pattern in the transmission of global market shocks. The analysis of dynamic correlations suggests a low degree of association between Islamic bonds and global stock markets with episodes of negative correlations observed, particularly during market crisis periods. Portfolio performance analysis suggests that Islamic bonds provide valuable diversification benefits that are not possible to obtain from conventional bonds.
Originality/value
This study provides comprehensive analysis of volatility interactions and dynamic correlations across Islamic and conventional markets within a regime-based framework and provides insight to whether these securities could serve as safe havens or diversifiers for global investors. The findings have significant implications for global diversification strategies, particularly during market crisis periods.
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Sukhmani Bhatia Chugh and Archana Goel
With the increase in uncertainty around the globe, an intensifying interest is seen in Economic Policy Uncertainty (EPU) as a topic of research. Researchers worldwide understand…
Abstract
With the increase in uncertainty around the globe, an intensifying interest is seen in Economic Policy Uncertainty (EPU) as a topic of research. Researchers worldwide understand the significance of the impact of EPU on the country's development. EPU has a far-reaching impact as uncertainty shocks in one part of the world resonate worldwide due to the level of interconnectivity, globalization and quick communication. In order to facilitate these researchers, this study presents a bibliometric analysis of the existing research in this field using VOS viewer software, by consolidating all the studies from Scopus indexed journal articles, conference proceedings and review papers published in English language from 2006 to 2022. Bibliometric analysis on EPU has rarely been performed. The analysis identifies the publication trends, journal-wise citation, most influential authors, countries, institutions, keyword co-occurrence and authors of different countries who have collaborated for the research in the field. Finally, 1,055 papers were used for bibliometric analysis. The findings depicted that the most cited article on EPU is ‘Measuring economic policy uncertainty’ by Baker et al. (2016) and the most prolific author appears to be Rangan Gupta from University of Pretoria which as an institution also has the maximum publications on this topic. The Journal Finance Research Letters has published the greatest number of researches on EPU. This chapter also summarizes the limitations of the study along with new areas of research.
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Observation of misalignment of the house prices with fundamentals in Malta was recently investigated (Vakili-Zad and Hoekstra, 2011; Micallef, 2018). As such, this study aims to…
Abstract
Purpose
Observation of misalignment of the house prices with fundamentals in Malta was recently investigated (Vakili-Zad and Hoekstra, 2011; Micallef, 2018). As such, this study aims to investigate nexus evidence of the housing market and production sector performance in Malta by using quarterly data spanning from 2005Q1 to 2016Q4.
Design/methodology/approach
Industrial expansion and development indicator-producer price index (ppi) and unemployment (uem) are used along with volatility index (vix) and fertility rate (frate) as control variables in a multivariate autoregressive distributed lag approach.
Findings
Precisely, the investigation reveals that any disequilibrium in the long-run equilibrium among these variables is subsequently corrected by the movement in the housing market vis-à-vis real residential property price. As the system is observed to adjust with a speed of 39.7 per cent in a situation of economic disequilibrium, the long-run impacts on the housing market are positive for ppi and vix but negative for frate and eum. The observed direction of the impacts in the short-run are the same as in the long-run for all variables. A reported sensitivity test indicates a very minimal differential impact for each variable in the long-run but with a significantly different adjustment parameter of 81.9 per cent. Also, the estimated system posits a very stable model that is void of serial correlation and heteroskedasticity.
Research limitations/implications
In view of the vibrant nature of the real estate and the housing sector of the country, consideration of the effective policy instruments provided by this study is strongly encouraged. On a wider note, these practicable tools could further be recommended to other regional countries.
Originality/value
The research presents a novel perspective of the real estate and housing sector of Malta, specifically in the light of economic diversification. The country’s housing sector is studied in relation with the performance of other sectors for the first time.
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Mehmet Balcilar, Rangan Gupta and Charl Jooste
The authors analyse the relationship between the South African real exchange rate and economic fundamentals – demand, supply and nominal shocks. The paper aims to discuss these…
Abstract
Purpose
The authors analyse the relationship between the South African real exchange rate and economic fundamentals – demand, supply and nominal shocks. The paper aims to discuss these issues.
Design/methodology/approach
The authors use a time-varying parameter VAR to study the coherence, conditional volatility and impulse responses of the exchange rate over specific periods and policy regimes. The model is identified using sign-restrictions that allow for some neutrality of impulse responses over contemporaneous and long horizons.
Findings
The results suggest that the importance of fundamental shocks on the exchange rate is time dependent. Hence there is a loss in information when using standard linear models that average out effects over time. The response of the exchange rate to demand and supply shocks have weakened over the 1994-2010 period.
Research limitations/implications
The period following financial crisis has strengthened the relationship between supply and demand shocks to the exchange rate, but has weakened the relationship between interest rate shocks and the exchange rate response.
Practical implications
This paper provides deeper insight as to how the exchange rate responds to fundamental shocks. This should help monetary policy understand the consequences of interest rate decisions on the exchange rate and the indirect effect of inflation on the exchange rate.
Originality/value
This application is new to the South African literature. The authors propose that the use of interest rates is limited in affecting the value of the rand exchange rate over particular periods. Isolating fundamental shocks to exchange rates over time helps policy makers make clearer and more informed decisions.
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Erdinc Karadeniz, Serkan Yilmaz Kandir, Mehmet Balcilar and Yildirim Beyazit Onal
The purpose of this paper is to investigate the factors affecting capital structure decisions of Istanbul Stock Exchange (ISE) lodging companies.
Abstract
Purpose
The purpose of this paper is to investigate the factors affecting capital structure decisions of Istanbul Stock Exchange (ISE) lodging companies.
Design/methodology/approach
A model based on the trade‐off and pecking order theories is specified and implications of both theories are empirically tested. The model is estimated using a dynamic panel data approach for five ISE companies for the period of 1994‐2006.
Findings
The findings suggest that effective tax rates, tangibility of assets, and return on assets are related negatively to the debt ratio, while free cash flow, non‐debt tax shields, growth opportunities, net commercial credit position, and firm size do not appear to be related to the debt ratio. Although the findings partially support the pecking order theory, neither the trade‐off nor the pecking order theory exactly seem to explain the capital structure of Turkish lodging companies.
Research limitations/implications
The data used in this paper are limited to five companies traded in the ISE, since the data on other companies are not available. A more detailed analysis would use data for other companies in the industry.
Practical implications
The findings of the study clearly demonstrate the importance of capital structure decisions for financial sources.
Originality/value
Although the capital structure theory is extensively examined in the finance literature, there are fewer studies covering the tourism industry, particularly Turkey. The paper establishes the determinants of the capital structure of Turkish lodging companies. The research findings should help managers to make optimal capital structure decisions.
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Siong Min Foo, Nazrul Hisyam Ab Razak, Fakarudin Kamarudin, Noor Azlinna Binti Azizan and Nadisah Zakaria
This study comprehensively aims to review the key influential and intellectual aspects of spillovers between Islamic and conventional financial markets.
Abstract
Purpose
This study comprehensively aims to review the key influential and intellectual aspects of spillovers between Islamic and conventional financial markets.
Design/methodology/approach
The study uses the bibliometric and content analysis methods using the VOSviewer software to analyse 52 academic documents derived from the Web of Sciences (WoS) between 2015 and June 2022.
Findings
The results demonstrate the influential aspects of spillovers between Islamic and conventional financial markets, including the leading authors, journals, countries and institutions and the intellectual aspects of literature. These aspects are synthesised into four main streams: research between stock indexes; studies between stock indexes, oil and precious metal; works between Sukuk, bond and indexes; and empirical studies review. The authors also propose future research directions in spillovers between Islamic and conventional financial markets.
Research limitations/implications
Our study is subject to several limitations. Firstly, the authors only used the WoS database. Secondly, the study only includes papers and reviews written in English from the WoS. This study assists academic scholars, practitioners and regulatory bodies in further exploring the suggested issues in future studies and improving and predicting economic and financial stability.
Originality/value
To the best of the authors’ knowledge, no extant empirical studies have been conducted in this area of research interest.
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Ibrahim Yasar Gok, Serhat Duranay and Hande Uzunoglu Unlu
This study aims to investigate the international portfolio diversification opportunities provided by Turkish sustainable firms to international socially responsible investors.
Abstract
Purpose
This study aims to investigate the international portfolio diversification opportunities provided by Turkish sustainable firms to international socially responsible investors.
Design/methodology/approach
The Borsa Istanbul Sustainability Index (XUSRD) and FTSE4Good index family daily data for the period of 11/04/2014-12/31/2017 is used and the DCC-GARCH model is applied to explore the dynamic correlation linkages.
Findings
The results indicate that co-movements between XUSRD and FTSE4Good indices are time-varying and generally display a low level. While the highest average conditional correlation value was observed between XUSRD and Developed 100 index, the lowest one was between XUSRD and FTSE4Good Japan index.
Research limitations/implications
Since XUSRD was launched on 11/04/2014, there is no available data before this date. Additionally, because the study includes indices from the USA to Japan, it is not possible to use high-frequency stock index data due to lack of overlapping time series.
Practical implications
This study contributes implications for investors of sustainability assets to improve their diversification. Especially, it is identified that the diversification opportunities provided by Turkish sustainable firms are largely possible for Japanese and Australian socially responsible investors. Additionally, this research has contributions for policymakers.
Originality/value
Although the conventional stock market indices are widely examined in terms of their time-variant relationship, there are only a few studies in the literature focusing on sustainability indices. Socially responsible investments (SRI) are emerging as a new trend, and these investments are also in need of international portfolio diversification. Therefore, this study is expected to fill a gap in the SRI literature.
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Lokman Gunduz and Mustafa Kemal Yilmaz
This paper aims to examine the convergence pattern of residential house prices in a panel of 55 major cities in Turkey over the period between 2010 and 2018 and to investigate the…
Abstract
Purpose
This paper aims to examine the convergence pattern of residential house prices in a panel of 55 major cities in Turkey over the period between 2010 and 2018 and to investigate the determinants of convergence club formations.
Design/methodology/approach
The authors applied the log t-test to identify the convergence clubs and estimated ordered logit model to determine the key drivers.
Findings
The results suggest that there are five convergence clubs and confirm the heterogeneity of the Turkish housing market. Istanbul, the commercial capital, and Mugla, an attractive tourist destination, are at the top of the housing market and followed by the cities located in the western part, particularly along the Aegean and Mediterranean coasts of Turkey. Moreover, the ordered logit model results point out that the differences in employment rate, climate, population density and having a metropolitan municipality play a significant role in determining convergence club membership.
Practical implications
Large-scale policy measures aiming to increase employment opportunities in rural cities of central and eastern provinces and providing lower land prices and property taxes in the metropolitan cities of Turkey can help mitigate some of the divergence in the house prices across cities.
Originality/value
The novelty of this study lies in employing a new data set at the city level containing 55 cities in Turkey, which is by far the largest in terms of city coverage among emerging market economies to implement the log t-test. It also contributes to the literature on city-specific determinants of convergence club formation in the case of an emerging economy.