Market efficiency in Indian soybean futures markets

2014 ◽  
Vol 9 (4) ◽  
pp. 520-534 ◽  
Author(s):  
Thiagu Ranganathan ◽  
Usha Ananthakumar
Keyword(s):  
Market Efficiency ◽  
Risk Premium ◽  
Futures Markets ◽  
Structural Breaks ◽  
Time Varying ◽  
Content Type ◽  
Futures Contract ◽  
Long Run ◽  
Short Run ◽  
Commodity Derivatives

Purpose – The National commodity exchanges were established in India in the year 2003-2004 to perform the functions of price discovery and price risk management in the economy. The derivatives market can perform these functions properly only if they are efficient and unbiased. So, there is a need to properly evaluate these aspects of the Indian commodity derivatives market. The purpose of this paper is to test the market efficiency and unbiasedness of the Indian soybean futures markets. Design/methodology/approach – The paper uses cointegration and a QARCH-M-ECM-based framework to test the market efficiency and unbiasedness in the soybean futures contract traded in the National Commodity Derivatives Exchange (NCDEX). The cointegration test is used to test the long-run unbiasedness and market efficiency of the contract, while the QARCH-M-ECM model is used to test the short-run market efficiency and unbiasedness of the contract by allowing for a time-varying risk premium. The price data is also tested for presence of structural breaks using a Zivot and Andrews unit root test. Findings – The soybean contract is unbiased in the long run, but there are short-run market inefficiencies and also a presence of a time-varying risk premium. Though the weak form of market efficiency is rejected in the short run, the semi-strong market efficiency is not rejected based on the forecasts. Originality/value – This is the first paper to consider time-varying risk premium while performing the tests of market efficiency and unbiasedness on Indian commodity markets.

Cointegration-based trading: evidence on index tracking & market-neutral strategies

2016 ◽  
Vol 42 (5) ◽  
pp. 449-471 ◽  
Author(s):  
Ioannis Papantonis
Keyword(s):  
Market Efficiency ◽  
Trading Strategies ◽  
Portfolio Performance ◽  
Pairs Trading ◽  
Content Type ◽  
Statistical Arbitrage ◽  
Long Run ◽  
Wide Range ◽  
Short Run ◽  
Depth Sensitivity

Purpose – The purpose of this paper is to present an alternative approach to equity trading that is based on cointegration. If there are long-run equilibria among financial assets, a cointegration-based trading strategy can exploit profitable opportunities by capturing mean-reverting short-run deviations. Design/methodology/approach – First, the author introduces an equity indexing technique to form cointegration tracking portfolios that are able to replicate an index effectively. The author later enhances this tracking methodology in order to construct more complex portfolio-trading strategies that can be approximately market neutral. The author monitors the performance of a wide range of trading strategies under different specifications, and conducts an in-depth sensitivity analysis of the factors that affect the optimal portfolio construction. Several statistical-arbitrage tests are also carried out in order to examine whether the profitability of the cointegration-based trading strategies could indicate a market inefficiency. Findings – The author shows that under certain parameter specifications, an efficient tracking portfolio is able to produce similar patterns in terms of returns and volatility with the market. The author also finds that a successful long-short strategy of two cointegration portfolios can yield an annualized return of more than 8 percent, outperforming the benchmark and also demonstrating insignificant correlation with the market. Even though some cointegration-based pairs-trading strategies can consistently generate significant cumulative profits, yet they do not seem to converge to risk-less arbitrages, and thus the hypothesis of market efficiency cannot be rejected. Originality/value – The primary contribution of the research lies within the detailed analysis of the factors that affect the tracking-portfolio performance, thus revealing the optimal conditions that can lead to enhanced returns. Results indicate that cointegration can provide the means to successfully reproducing the risk-return profile of a benchmark and to implementing market-neutral strategies with consistent profitability. By testing for statistical arbitrage, the author also provides new evidence regarding the connection between the profit accumulation of cointegration-based pairs-trading strategies and market efficiency.

Expectations, uncertainty and risk premium

2017 ◽  
Vol 9 (3) ◽  
pp. 338-352 ◽  
Author(s):  
Rexford Abaidoo
Keyword(s):  
Risk Premium ◽  
Inflation Expectations ◽  
Content Type ◽  
Macroeconomic Conditions ◽  
Distributed Lag ◽  
Us Economy ◽  
Empirical Estimates ◽  
Long Run ◽  
Distributed Lag Models ◽  
Short Run

Purpose This study aims to examine short- and long-run effects of specific macroeconomic conditions on risk premium estimates on lending. Design/methodology/approach Empirical estimates are based on error correction and autoregressive distributed lag models. Findings The results suggest that, in the short run, inflation expectations, recession expectations and actual inflationary conditions tend to have a significant impact on risk premium estimates; in the long run, however, only inflation expectations and recession expectations are significant in risk premium estimates on lending. Originality/value This study examines how specific conditions of uncertainty and expectations influence variability in risk premium estimates on lending in the US economy.

How linkages fuel dependent economic policy initiatives

2017 ◽  
Vol 59 (2) ◽  
pp. 303-318 ◽  
Author(s):  
Amanjot Singh ◽  
Manjit Singh
Keyword(s):  
Financial System ◽  
Financial Stress ◽  
Stress Index ◽  
Time Varying ◽  
Content Type ◽  
Stress Indices ◽  
Long Run ◽  
The Us ◽  
Financial Stress Index ◽  
Short Run

Purpose With the globalization and liberalization in terms of increasing financial flows across the countries, the policy makers around the world are not independent in the context of monetary and fiscal policy initiatives. In this regard, this paper aims to attempt to quantify and capture long run, short run as well as time-varying linkages among the two financial stress indices, namely, Kansas City Financial Stress Index (KCFSI) and Indian Financial Stress Index (IFSI) across the monthly period (2004 to 2014). Design/methodology/approach Owing to the non-existence of a standardized financial stress index with regards to the Indian financial system, the study has developed an index/stress indicator using principal component analysis. Furthermore, to comprehend the linkages, the study uses bivariate Johansen cointegration model, vector error correction model, impulse response functions (IRF), variance decomposition analysis (VDA), Toda-Yamamoto’s Granger causality test and, finally, bivariate generalized autoregressive conditional heteroskedastic (BVGARCH) (1,1) model under constant conditional correlation (CCC) framework. Findings The results report a stochastic trend among the two indices wherein the US financial system acts as a source of a shock causing disequilibrium in the long run co-movement. About 40 per cent of the adjustments take place in one month and rest in the coming months. Both the IRF and VDA report a greater degree impact of the US financial stress on the Indian financial system. Moreover, there is a uni-directional short run causality running from the stress in the US financial system to the Indian financial stress. Furthermore, the co-movement between the US and Indian financial stress reached to its maximum significant level during the sub-prime crisis even confirmed by the Markov switching model results. Practical implications Overall, the results provide an insight to the financial market investors both domestic as well as international in their act of risk management. The financial stress prevailing in an economy further has an impact on different economic factors like foreign exchange rates, interest rates, yield curves, equity market returns and volatility. So, the empirical results support strong implications for the Indian policy makers as well as investors in the Indian financial markets. Originality/value The present study contributes to the literature in three senses. First, the study considers indices reflecting financial stress in the Indian as well as US financial system. Second, the study captures long run as well as short run linkages among the financial stress indices relating to a developed and an emerging market. Finally, the study uses CCC-BVGARCH (1,1) model to account for the time-varying co-movement among the financial stress indices. This helps in comprehending time-varying nature of the co-movement of the stress in the financial system prevalent in the respective markets.

Fossil fuel, industrial growth and inward FDI impact on CO2 emissions in Vietnam: testing the EKC hypothesis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sami Ullah ◽  
Muhammad Nadeem ◽  
Kishwar Ali ◽  
Qaiser Abbas
Keyword(s):  
Fuel Consumption ◽  
Structural Breaks ◽  
Fossil Fuel ◽  
Ekc Hypothesis ◽  
Industrial Growth ◽  
Content Type ◽  
Dynamic Relationship ◽  
Fossil Fuel Consumption ◽  
Long Run ◽  
Short Run

PurposeIn this paper, the authors investigate that the increasing level of fossil fuel combustion in the industrial sector has been considered the prime cause for the emissions of greenhouse gas. Meanwhile, the research focusing on the impact of fossil fuel consumption on the emission of CO2 is limited for the developing countries containing Vietnam. This study applied the autoregressive distributed lag (ARDL) approach with structural breaks presence, and the Bayer–Hanck combined cointegration method to observe the rationality of the environmental Kuznets curve (EKC) hypothesis in the dynamic relationship between the industrialization and carbon dioxide (CO2) emission in Vietnam, capturing the role of foreign direct investment (FDI) inflows and the fossil fuel consumption over the period of 1975–2019. The outcomes revealed the confirmation of cointegration among the variables and both short and long-run regression parameters indicated the evidence for the presence of a U-shaped association between the level of industrial growth and CO2 emission that is further confirmed by employing the Lind and Mehlum U-test for robustness purpose. The results of Granger causality discovered a unidirectional causality from FDI and fossil fuel consumption to CO2 emission in the short run. For the policy points, this study suggests the use of efficient and low carbon-emitting technologies.Design/methodology/approachIn order to test for consistency and robustness of the cointegration analysis, this study also applied the ARDL bound testing method to find out long-run association among variables with the existence of the structural break in the dataset. The ARDL method was preferred to other traditional cointegration models; because of the smaller dataset, the results obtained from the ARDL method are efficient and consistent and equally appropriate for I(1) and I(0) variables.FindingsThe short-run and long-run causal associations among variables have been observed by employing the error correction term (ECT) augmented Granger-causality test that revealed the presence of the long-run causality among variables only when the CO2 emission is employed as a dependent variable. The outcomes for short-run causality indicated the presence of unidirectional causality between consumption of fossil fuel and CO2 emission, where the fossil fuel consumptions Granger-cause CO2 emission. Industrial growth has also been found to have an impact on fossil fuel consumptions, however not the opposite. This advocates that the policies aimed at reducing the fossil fuel consumptions would not be harmful to industrial growth as other energy efficient and cleaner technology could be implemented by the firms to substitute the fossil fuel usage.Originality/valueThe study explored the dynamic relationship among FDI, consumption of fossil fuel, industrial growth and the CO2 emission in Vietnam for the time period 1975–2019. The newly established Bayer–Hanck joint cointegration method and the ARDL bound testing were employed by taking into account the structural breaks in the dataset.

Measuring volatility spillovers and asymmetric responses of Agri commodity prices: evidence from spices and rubber futures in India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Saji Thazhugal Govindan Nair
Keyword(s):  
Futures Markets ◽  
Commodity Prices ◽  
Futures Contracts ◽  
Spot Markets ◽  
Content Type ◽  
Volatility Spillovers ◽  
Price Series ◽  
Long Run ◽  
Short Run ◽  
Asymmetric Responses

Purpose This paper aims to investigate price responses and volatility spillovers between commodity spot and futures markets. The study ultimately seeks the evidence-based claims on the efficiency of the long run and short run horizontal price transmissions from futures markets to spot markets. Design/methodology/approach This study used the most recent daily price series of pepper, cardamom and rubber, during the period 2004–2019, use “cointegration-ECM-GARCH framework” and verify the persisting validity of the “expectancy theory” of commodity futures pricing. Findings The results offer overwhelming evidence of futures market dominance in the price discoveries and volatility spillovers in spot markets. However, this paper finds asymmetric responses between cash and futures prices across markets. The hedging efficiency of futures contracts is commodities specific’ where spices futures are more efficient than the rubber futures. Practical implications The study passes on vital information to the producers and traders of spices and rubber who have a potential interest in the use of futures contracts to make profits from arbitrage between futures and cash markets. Originality/value The paper is unique in terms of understanding asymmetric price linkages in markets for plantation crops.

scholarly journals The relationship between self-employment and unemployment in the long-run

2016 ◽  
Vol 43 (3) ◽  
pp. 358-379 ◽  
Author(s):  
George Saridakis ◽  
Miguel Angel Mendoza ◽  
Rebeca I. Muñoz Torres ◽  
Jane Glover
Keyword(s):  
Design Methodology ◽  
Structural Breaks ◽  
Panel Cointegration ◽  
Data Set ◽  
Content Type ◽  
Self Employment ◽  
Long Run ◽  
Wide Range ◽  
Short Run ◽  
The Relationship

Purpose – Although a lot of research has been done on the link between self-employment and unemployment, often focusing on the short-run of the relationship, the long-run association between the two variables has not received adequate attention. The paper aims to discuss these issues. Design/methodology/approach – In this paper the authors examine the long-run relationship between self-employment and unemployment using panel cointegration methods allowing for structural breaks and covering a wide range of European OECD countries using the COMPENDIA data set over the period 1990-2011. Findings – The findings indicate that a long-run relationship between self-employment and unemployment exist in the panel, but the cointegrating coefficients are unstable. Originality/value – The estimates finds positive and statistically significant long-run association between self-employment and unemployment exists for more than 50 per cent of the countries included in the sample after the break. For the rest of the countries the authors find either negative or statistically insignificant association.

The global influence of oil futures-prices on Dow Jones Islamic stock indexes

2019 ◽  
Vol 14 (4) ◽  
pp. 523-549 ◽  
Author(s):  
Arfaoui Mongi
Keyword(s):  
Structural Breaks ◽  
Oil Prices ◽  
Futures Prices ◽  
Oil Futures ◽  
Content Type ◽  
Refined Oil ◽  
Long Run ◽  
Short Run ◽  
Testing Approach ◽  
Global Influence

Purpose The purpose of this paper is to investigate the global influence of crude and refined oil futures prices on Dow Jones Islamic equity indices (DJIMI) during the recent global financial crisis under structural breaks in the conditional volatility of oil futures prices. Design/methodology/approach It aims at exploring the long-run and the short-run elasticity and causal relationships using an ARDL bound testing approach and a vector error correction model. Findings The main findings confirm the presence of long-run relationship for DJIM emerging markets index compared to other global and sub-regional developed indexes. Speed of adjustment to the long-run equilibrium is moderate and the effect of structural breaks, produced from nonlinear volatility model with long memory (LM), is overall not pronounced for that relationship. Short-run causality is bi-directional but long-run Granger causality does not run from refined oil to the DJIMI and crude oil. Research limitations/implications The paper demonstrates the implicit extent of international financial integration of Islamic stock markets in light of the global influence of oil prices. Practical implications The findings offer some highlights to researchers, portfolio managers and policymakers. Originality/value The paper gives an answer to an identified need to test the position of Islamic equity markets as booming Islamic investment and socially responsible investment areas to the global influence of the new soaring path of oil markets. It uses as well bounds testing approach and tests weak and strong causalities under structural breaks. It considers as well LM behavior in oil prices along with the asymmetry property in oil prices.

Does credit boost agricultural performance? Evidence from Vietnam

2020 ◽  
Vol 47 (9) ◽  
pp. 1203-1221
Author(s):  
Nguyen Tuan Anh ◽  
Christopher Gan ◽  
Dao Le Trang Anh
Keyword(s):  
Structural Breaks ◽  
Public Investment ◽  
Causality Test ◽  
Agricultural Credit ◽  
Content Type ◽  
Distributed Lag ◽  
Agricultural Performance ◽  
Long Run ◽  
Short Run ◽  
The Government

PurposeThis study investigates the short-run and long-run impacts of agricultural credit on Vietnam's agricultural GDP over the period 2004:Q4–2016:Q4, with the incorporation of agricultural labor, public investment and rainfall as important determinants of agricultural GDP.Design/methodology/approachThis study applies the indicator saturation (IS) break tests and the autoregressive distributed lag (ARDL) bounds test with structural breaks to examine the credit–agricultural performance nexus. The causal relationships among variables are explored through the Toda–Yamamoto Granger causality test.FindingsThe results indicate that agricultural credit positively influences agricultural GDP in both the short-run and long-run. A unidirectional causal relationship running from credit to agricultural GDP is confirmed. The results also discover the positive and significant effects of labor and rainfall on agricultural GDP in the long-run.Practical implicationsThe results imply that the government should focus on expanding agricultural credit as well as enhancing the efficiency of agricultural credit. Furthermore, formal credit institutions should be encouraged to work closely with farmers and agricultural enterprises to offer flexible lending periods and amounts to meet the real situation of agricultural production.Originality/valueThis study is the first to examine the credit–agricultural performance relationship at the macro-level in Vietnam. Based on the empirical results, the study provides crucial implications for policymakers to optimize the effectiveness of agricultural credit and enhance nationwide agricultural performance.

scholarly journals The economic market outcomes and income distribution when capital is not homogeneous

2019 ◽  
Vol 1 (1) ◽  
pp. 38-56
Author(s):  
Ahmet Özçam
Keyword(s):  
Measurement Problem ◽  
Physical Capital ◽  
Threshold Level ◽  
Market Model ◽  
Economic Market ◽  
Constant Elasticity ◽  
Content Type ◽  
Macroeconomic Analysis ◽  
Long Run ◽  
Short Run

Purpose An aggregate production function has been used in macroeconomic analysis for a long time, even though it seems that it is conceptually confusing and problematic. The purpose of this paper is to argue that the measurement problem related to the heterogenous capital input that exists in macroeconomics is also relevant to microeconomic market situations. Design/methodology/approach The author constructed a microeconomic market model to address both the problems of the measurement of the physical capital and of substitutability between labor and capital in the short run using two types of technologies: labor neutral and labor reducing. The author proposed that labor and physical capital inputs are complementary in the short run and can become substitutes only in the long run when the technology advances. Findings The author found that even if the technology improves at a fast rate over time, there are then diminishing returns of profits to technology and an upper limit to profits. Moreover, the author showed that under the labor-reducing technology, labor class earns more initially as technology improves, but their incomes start declining after some threshold level of passage of time. Originality/value The author cautioned the applied researcher that the estimated labor and capital coefficients of generalized Cobb–Douglas and constant elasticity of substitution of types of production functions could not be interpreted as partial elasticities of labor and capital if in reality the data come from fixed-proportions types of processes.

Exploring the relationship between macroeconomic indicators and sovereign credit default swap in Pakistan

2017 ◽  
Vol 18 (4) ◽  
pp. 368-380
Author(s):  
Abdul Rashid ◽  
Farooq Ahmad ◽  
Ammara Yasmin
Keyword(s):  
Exchange Rate ◽  
Credit Default Swap ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Long Run ◽  
Credit Default ◽  
Macroeconomic Indicators ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate

Purpose This paper aims to empirically examine the long- and short-run relationship between macroeconomic indicators (exchange rates, interest rates, exports, imports, foreign reserves and the rate of inflation) and sovereign credit default swap (SCDS) spreads for Pakistan. Design/methodology/approach The authors apply the autoregressive distributed lag (ARDL) model to explore the level relationship between the macroeconomic variables and SCDS spreads. The error correction model is estimated to examine the short-run effects of the underlying macroeconomic variables on SCDS spreads. Finally, the long-run estimates are obtained in the ARDL framework. The study uses monthly data covering the period January 2001-February 2015. Findings The results indicate that there is a significant long-run relationship between the macroeconomic indicators and SCDS spreads. The estimated long-run coefficients reveal that both the interest rate and foreign exchange reserves are significantly and negatively, whereas imports and the rate of inflation are positively related to SCDS spreads. Yet, the results suggest that the exchange rate and exports do not have any significant long-run impact on SCDS spreads. The findings regarding the short-run relationship indicate that the exchange rate, imports and the rate of inflation are positively, whereas the interest rate and exports are negatively related to SCDS spreads. Practical implications The results suggest that State Bank of Pakistan should design monetary and foreign exchange rate polices to minimize unwanted variations in the exchange rate to reduce SCDS spreads. The results also suggest that it is incumbent to Pakistan Government to improve the balance of payments to reduce SCDS spreads. The findings also suggest that the inflation targeting policy can also help in reducing SCDS spreads. Originality/value This is the first study to examine the empirical determinants of SCDS spreads for Pakistan. Second, it estimates the short- and long-run effects in the ARDL framework. Third, it considers both internal and external empirical determinants of SCDS spreads.

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