Benefits of international portfolio diversification

2014 ◽  
Vol 7 (4) ◽  
pp. 457-472 ◽  
Author(s):  
S. Jamaledin Mohseni Zonouzi ◽  
Gholamreza Mansourfar ◽  
Fateme Bagherzadeh Azar
Keyword(s):  
Middle Eastern ◽  
Equity Returns ◽  
Content Type ◽  
International Portfolio Diversification ◽  
Long Run ◽  
Ardl Approach ◽  
International Portfolio ◽  
Short Run ◽  
Short And Long Term

Purpose – This paper aims to investigate opportunities of the short- and long-run international portfolio diversification (IPD) benefits by investing in the Middle Eastern oil-producing countries. Over the past decades, IPD has been the integral feature of global capital markets. Several potential benefits like increasing returns and/or reducing risk have made investors to internationalize their portfolios. Solnik’s theory (1974) approved that gains can be achieved through IPD if returns in the different markets are not perfectly correlated. This may attribute to low correlations of equity returns among different economies. In this regards, there would be a large potential of diversification benefits for investors that diversify into new emerging group of economies such as equity markets of the main oil-producing countries. These markets are often segmented and they may ensure a superior return rate for a given risk level. Design/methodology/approach – In most of the previous studies, Pearson’s correlation test is used to analyze the short-run relationship of market prices. However, recent empirical studies indicate that correlations between equity returns vary over the time. To examine the time-varying conditional correlation, this paper used the dynamic conditional correlation (DCC) model to investigate opportunities of the short-run IPD benefits. In addition, for the long-run linkage analysis, the autoregressive distributed lag (ADRL) approach introduced by Pesaran et al. (2001) is applied. Findings – It is found that, the market returns of the sampled countries are not definitely correlated in the short- and long-term. So, international portfolio investors may get the short- and long-term diversification benefits by diversifying their portfolios among the Middle Eastern equity markets, namely, Iran, Bahrain, Qatar, Kuwait, Oman, Saudi Arabia and UAE. Originality/value – This paper departs from earlier studies by focusing on the dynamic characteristics of correlation. Two main issues are pursued in this paper. First, instead of modeling the correlation by methods like Pearson correlation coefficient that consider the constant-correlation assumption, this paper directly uses the DCC model. Second, to empirically estimate the long-run relationship among stock markets in the Middle Eastern oil-producing countries, the ARDL approach is utilized. The ARDL approach is more robust and performs well for small sample sizes than other co-integration techniques.

scholarly journals Using the ARDL-ECM approach to investigate the nexus between support price and wheat production

2019 ◽  
Vol 26 (1) ◽  
pp. 139-152
Author(s):  
Abbas Ali Chandio ◽  
Yuansheng Jiang ◽  
Abdul Rehman
Keyword(s):  
Bounds Testing ◽  
Content Type ◽  
Wheat Production ◽  
Long Run ◽  
Long Term Effect ◽  
Ardl Approach ◽  
Support Price ◽  
Short Run ◽  
Effect Of Support

PurposeThe purpose of this paper is to examine the effect of support price on wheat production in Pakistan during the period 1971–2016.Design/methodology/approachTo capture the effect of support price on wheat production, the authors estimated the long-run linkage by using the ARDL bounds testing approach to cointegration.FindingsThis study confirmed the presence of a positive and long-term effect of area under cultivation, support price and fertilizer consumption on wheat production through ARDL bounds test. The results showed that both in the long run and short run, support price plays an important role in the enhancement of wheat production. The authors also found that the coefficients of the area under cultivation and fertilizer consumption variables were statistically significant and positive both in the long run and short run.Originality/valueThe use of the ARDL approach that examines the long-run and short-run effects of support price on wheat production in Pakistan makes the current study unique. An emerging economic literature suggests that only limited research has been conducted in this area.

Relationship between developed, European and South Asian stock markets: a multivariate analysis

2016 ◽  
Vol 5 (3) ◽  
pp. 385-402 ◽  
Author(s):  
Syed Jawad Hussain Shahzad ◽  
Memoona Kanwal ◽  
Tanveer Ahmed ◽  
Mobeen Ur Rehman
Keyword(s):  
South Asian ◽  
Portfolio Management ◽  
Stock Markets ◽  
Content Type ◽  
International Portfolio Diversification ◽  
Long Run ◽  
International Portfolio ◽  
Short Run ◽  
International Investors ◽  
European Stock Markets

Purpose The assessment of interdependence between stock markets is an important aspect of international portfolio management. The purpose of this paper is to examine and highlight the diversification potential of South Asian stock markets vis-à-vis developed and European stock markets. Design/methodology/approach The developed stocks markets include USA and UK, and South Asian stock markets include India, Pakistan and Sri Lanka while DJ STOXX 600 index is used to represent the European stock markets. Monthly data are used to examine long-run relationship through ARDL bound testing approach and estimates are obtained using DLOS. Short-term dynamics are captured through vector error correction-based Granger causality. Findings South Asian stock markets are closely linked with each other; similarly, developed/European markets are interlinked. US stock market not only impacts European stock markets, it also Granger cause South Asian stock markets. The findings suggest increase in comovement of South Asian stock markets with the global markets after financial crises of 2007-2008. Practical implications The diversification benefits of South Asian stock markets for international investors are still evident due to their low relationship (in both long and short run) with developed/European stock markets. Originality/value Given the emergence of South Asian stock markets, new insight on their relationship with developed stock markets can provide interesting findings for international portfolio diversification. The South Asian equity markets are an important source of investment because of their immense growth and weak correlation with international markets.

Where Did All the Dollars Go? The Effect of Cash Flows on Capital and Asset Structure

2011 ◽  
Vol 46 (5) ◽  
pp. 1259-1294 ◽  
Author(s):  
Sudipto Dasgupta ◽  
Thomas H. Noe ◽  
Zhen Wang
Keyword(s):  
Cash Flow ◽  
Economic Effect ◽  
Balance Sheet ◽  
Cash Flows ◽  
Long Run ◽  
Goods Market ◽  
Short Run ◽  
Debt Market ◽  
Short And Long Term

AbstractThis paper documents the short- and long-term balance sheet effect of cash flows. We show that cash savings in the short run and debt reduction in both the short and the long run account for a substantial fraction of cash flow use. Although, in the long run, investment exhibits substantial sensitivity to cash flows, investment does not absorb the entire cash flow shock. In fact, the tighter the financial constraints, the smaller the fraction of cash flow absorbed by investment and the more by leverage reduction. Firms stage their response to increases in cash flow, delaying investment while building up cash stocks and reducing leverage. These results suggest that much of the short-run economic effect of cash flow shocks to the corporate sector may be channeled into the corporate debt market rather than the capital goods market, especially when financing constraints tighten.

Analyzing Long-Term Dynamic Causal Linkages and Financial Integration Between the Capital Markets in Romania and Hungary

2019 ◽  
pp. 215-228
Keyword(s):  
Stock Markets ◽  
Financial Integration ◽  
Financial Contagion ◽  
Emerging Stock Markets ◽  
International Portfolio Diversification ◽  
Contagion Effects ◽  
Long Run ◽  
International Portfolio ◽  
The Empirical Analysis

This chapter aims to investigate long-term dynamic causal linkages between stock markets in Hungary and Romania in order to obtain additional benefits based on international portfolio diversification, especially in terms of globalization. Emerging stock markets are generally considered to be more attractive for both institutional and individual financial investors due to certain stylized facts. The volatility transmission patterns, financial contagion effects, international interdependence and long-run causal linkages between international stock markets highlight the importance of a functional and stable financial environment. Technically, the structure of this subchapter includes both theoretical developments and additional empirical results. Moreover, the empirical analysis provides a quantitative perspective on global interdependencies between Romania and Hungary.

scholarly journals Bad or good neighbours: a spatial financial contagion study

2020 ◽  
Vol 37 (4) ◽  
pp. 753-776
Author(s):  
Matteo Foglia ◽  
Alessandra Ortolano ◽  
Elisa Di Febo ◽  
Eliana Angelini
Keyword(s):  
Spatial Dimension ◽  
Credit Spread ◽  
Credit Spreads ◽  
Financial Contagion ◽  
Content Type ◽  
Long Run ◽  
Credit Default ◽  
Short And Long Term ◽  
Dynamic Spatial Durbin Model

Purpose The purpose of this paper is to study the evolution of financial contagion between Eurozone banks, observing the credit default swaps (CDSs) market during the period 2009–2017. Design/methodology/approach The authors use a dynamic spatial Durbin model that enables to explore the direct and indirect effects over the short and long run and the transmission channels of the contagion. Findings The results show how contagion emerges through physical and financial market links between banks. This finding implies that a bank can fail because people expect other related financial institutions to fail as well (self-fulfilling crisis). The study provides statistically significant evidence of the presence of credit risk spillovers in CDS markets. The findings show that equity market dynamics of “neighbouring” banks are important factors in risk transmission. Originality/value The research provides a new contribution to the analysis of EZ banking risk contagion, studying CDS spread determinants both under a temporal and spatial dimension. Considering the cross-dependence of credit spreads, the study allowed to verify the non-linearity between the probability of default of a debtor and the observed credit spreads (credit spread puzzle). The authors provide information on the transmission mechanism of contagion and, on the effects among the largest banks. In fact, through the study of short- and long-term impacts, direct and indirect, the paper classify banks of systemic importance according to their effect on the financial system.

scholarly journals Integration Rice Price And Farmers Welfare With Error Correction Model Analysis

2019 ◽  
Vol 7 (9) ◽  
pp. 221-228
Author(s):  
Yogi Makbul
Keyword(s):  
Error Correction ◽  
Error Correction Model ◽  
Policy Intervention ◽  
Correction Model ◽  
Long Run ◽  
Short Run ◽  
Short And Long Term ◽  
Rice Prices ◽  
Support Policy

This research analyzes the short- and long-term influence of rice prices on the welfare of Indonesian farmers using an error correction model. Drawing upon data from Indonesia's Central Bureau of Statistics, it reveals that rice prices exert significant positive short-run effects and no significant long-run influence on farmers' welfare. These findings extend or refine results from earlier studies that lack the time series perspective of our research. They also support policy intervention by the Indonesian government to increase farmers' welfare and assure food supply.  

Exchange rate volatility and exports from India: a commodity-level panel data analysis

2019 ◽  
Vol 12 (1) ◽  
pp. 23-44
Author(s):  
Chandan Sharma
Keyword(s):  
Exchange Rate ◽  
Panel Data ◽  
Exchange Rate Volatility ◽  
Nominal Exchange Rate ◽  
Exchange Rate Risk ◽  
Content Type ◽  
Long Run ◽  
Short Run ◽  
The Relationship

PurposeThis study aims to examine the relationship between exchange rate risk and export at commodity level for the Indian case.Design/methodology/approachThe monthly panel data used for analysis are at a disaggregated level, which cover around 100 products, encompassing all merchandize sectors for the period spanning from 2012:12 to 2017:11. To measure the exchange rate volatility, the authors use real as well as nominal exchange rate concepts and predict the volatility of exchange rate using the autoregressive conditional heteroscedastic-based model. They use pooled mean group, mean group and common correlated effects mean group estimator that is suitable for the objectives and data frequency.FindingsThe empirical analysis indicates both short- and long-term negative effects of exchange rate variations on exporting. Specifically, in the long run, real exchange rate as well as nominal exchange rate volatility has significant effects on export performance, yet, the effects of uncertainty of nominal exchange rate is much severe and intense. In the short run, it is the nominal exchange rate uncertainty that hurts exports from India. Nevertheless, the short-run effect is much lesser than the long-run, supporting the argument that the short-term exchange rate risk can be hedged, at least partially, through financial instruments; however, uncertainty of the long-term horizon cannot be hedged easily and cost-effectively.Practical implicationsReducing uncertainty and attaining stability in exchange rate and price level should be an important policy objective in developing countries such as India to achieve higher export growth, both in the short and long run.Originality/valueUnlike previous studies, this paper tests the relationship using micro-level data and uses advanced econometric techniques that are likely to provide more precise information regarding the association between exchange rate volatility and trade flows.

On the link between policy uncertainty and housing permits: asymmetric evidence from state-level data in the USA

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohsen Bahaman-Oskooee ◽  
Hesam Ghodsi ◽  
Muris Hadzic
Keyword(s):  
Error Correction ◽  
State Level ◽  
Policy Uncertainty ◽  
Content Type ◽  
Asymmetric Effects ◽  
Long Run ◽  
Ardl Approach ◽  
The Usa ◽  
Short Run ◽  
Error Correction Modeling

Purpose The purpose of this study is to assess the symmetric and asymmetric impact of a measure of policy uncertainty on house permits issued in each state of the USA. Design/methodology/approach To assess the symmetric effects, the authors use Pesaran et al.’s (2001) linear autoregressive distributed lag (ARDL) approach to error-correction modeling. To assess the asymmetric effects, they rely upon Shin et al.’s (2014) nonlinear ARDL approach to error-correction modeling. Both approaches have the advantage of producing short-run and long-run effects in one step. Findings The authors find short-run symmetric effects of policy uncertainty on house permits issued in 22 states that lasted into the long run in three states only. However, the numbers were much higher when they estimated the possibility of asymmetric effects of policy uncertainty. Indeed, they found short-run asymmetric effects in 38 states and long-run asymmetric effects in 18 states. Originality/value Some previous studies assessed the effects of a measure of policy uncertainty on house prices. In this paper, the authors extend the same analysis to the supply side of the housing market by assessing the effects of policy uncertainty on house permits in each state of the USA.

Volatility in frontier markets: a Multivariate GARCH analysis

2019 ◽  
Vol 16 (3) ◽  
pp. 294-312
Author(s):  
Neha Seth ◽  
Monica Singhania
Keyword(s):  
Financial Distress ◽  
Spillover Effect ◽  
Multivariate Garch ◽  
Volatility Spillover ◽  
Causality Test ◽  
Content Type ◽  
Hedging Strategies ◽  
Long Run ◽  
Short Run

Purpose The purpose of this paper is to analyze the existence of volatility spillover effect in frontier markets. This study also examines whether any linkages exist among these markets or not. Design/methodology/approach Monthly data of regional frontier markets, from 2009 to 2016, are analyzed using Multivariate GARCH (BEKK and Dynamic Conditional Correlation (DCC)) models. Findings The result of cointegration test shows that the sample frontier markets are not linked in long run, and Granger causality test reveals that the markets under consideration do not cause each other even in the short run. BEKK test says that the effect of the arrival of shock from the own market does not last for longer, whereas shock from other markets lasts with the stronger persistence, and according to DCC test, the volatility spillover exists for all the markets. Practical implications The results of present study suggest that the frontier markets are not cointegrated in the long run as well as in the short run, which opens the doors for long-term investments in these markets in future, which may lead to decent returns. Long-term investors may draw the benefits from including the financial assets in their portfolios from these non-integrated frontier markets; nevertheless, they have to consider and implement diversification and hedging strategies during the period of financial turmoil, so as to protect themselves against economic and financial distress. Originality/value Significant work has been done on developed, developing and emerging markets but frontier markets are not explored much so far. This paper is an attempt to see the status of frontier stock markets as potential financial markets for diversification benefits.

Toward opening a new route for coal trading: a case study on a Bangladeshi SME

2017 ◽  
Vol 7 (3) ◽  
pp. 1-13
Author(s):  
Md. Fazla Mohiuddin ◽  
Anindo Mahmud ◽  
Hamim Islam ◽  
Tajandia Rahman Anchal
Keyword(s):  
International Business ◽  
Cultural Economic ◽  
Content Type ◽  
Trade Routes ◽  
Long Run ◽  
Indian State ◽  
Short Run ◽  
Huge Impact ◽  
Information And Communication ◽  
Short And Long Term

Study level/applicability Undergraduate/Masters/MBA. Case overview Anamika Enterprise Limited (AEL) is an export-import company founded in 1988. Today, AEL primarily imports coal from India which it then sells to customers in Bangladesh. However, a recent ban on coal mining in the Indian state of Meghalaya has created a huge problem for AEL. It is now considering opening trade routes to China and Indonesia. For that, it will need to consider both the short- and long-term factors related to its decision. It will need to take into consideration the cultural, economic and social factors in all three countries and trade accordingly. Tariff barriers and transportation costs will be a problem for AEL in the short run but in the long run, that may be overcome because of the experience effect arising from international business. Information and communication technology is also expected to have a huge impact. Expected learning outcomes Students are expected to learn the challenges of running international business in the real world and ways to overcome these challenges. Supplementary materials Teaching Notes are available for educators only. Please contact your library to gain login details or email [email protected] to request teaching notes. Subject code CSS 5: International Business.

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