scholarly journals Volatility Spillover Dynamics between Large-, Mid-, and Small-Cap Stocks in the Time-Frequency Domain: Implications for Portfolio Management

2021 ◽  
Vol 14 (11) ◽  
pp. 531
Author(s):  
Sangram Keshari Jena ◽  
Aviral Kumar Tiwari ◽  
Ashutosh Dash ◽  
Emmanuel Joel Aikins Abakah
Keyword(s):  
Frequency Domain ◽  
Portfolio Management ◽  
Error Variance ◽  
Portfolio Diversification ◽  
Volatility Spillover ◽  
Time Frequency ◽  
Long Run ◽  
Frequency Domains ◽  
Short Run ◽  
High Level

The connectedness dynamics between large-, mid-, and small-cap stocks is investigated using the forecasted error variance decomposition (FEVD) spillover framework of Diebold and Yilmaz in the time-frequency domain. Total volatility spillover (i.e., connectedness) is elevated between large-, mid-, and small-cap stocks during the study period. This high level of spillover exists in the short run only, and declines gradually in the medium to long run, thus providing opportunities for portfolio diversification (hedging) in multi-cap investing during the medium-to-long run (short run) only. Like total connectedness, a similar pattern of bilateral connectedness is observed between either of the two indices, thus providing a similar opportunity in the short and long runs. The mid-cap index emerges as the major contributor to total volatility in the system, followed by the small- and large-cap indices, during the analyzed period. The volatility spillover is time-varying in both the time and frequency domains.

Determinants of Budget Deficit in Nigeria

2021 ◽  
Vol 6 (1) ◽  
pp. 1
Author(s):  
Maimuna M Shehu ◽  
Ibrahim M Adamu
Keyword(s):  
Budget Deficit ◽  
Budget Deficits ◽  
Cointegrating Vector ◽  
Long Run ◽  
Johansen Cointegration ◽  
Short Run ◽  
Johansen Cointegration Test ◽  
The Government ◽  
One Year ◽  
High Level

This paper investigates the factors governing the determination of budget deficit in Nigeria from 1981q1 through 2016q4. Our methodology is based on Johansen cointegration and Vector Error Correction model (VECM) approach. The result from the Johansen cointegration test suggests one cointegrating vector, which indicates the existence of a long run cointegrating relationship. Evidence from the long run and short run parameters suggest that exchange rate, interest rate and one year lag of budget deficit are the major determinants of budget deficit. Therefore, to achieve a realistic fiscal surplus, the government should determine a high level of accountability in its fiscal operations. In addition, any fiscal surplus should be channeled into productive investments to diversify the economy and reduce the likelihood of potential budget deficits.

Economic Cycles in Argentina: 1875–1990

2006 ◽  
Vol 38 (3) ◽  
pp. 549-570 ◽  
Author(s):  
ISABEL SANZ-VILLARROYA
Keyword(s):  
Aggregate Demand ◽  
Unit Root Tests ◽  
Economic Cycles ◽  
Long Run ◽  
Economic Forces ◽  
Mode Of Operation ◽  
Key Factor ◽  
Short Run ◽  
High Level ◽  
Level Of Agreement

This article analyses the short-run periods that can be derived from the GDP per capita series for Argentina between 1875 and 1990, after extracting its segmented long-run trend using time series techniques and unit root tests. It also studies the economic forces which, from the aggregate demand side, might provide an explanation for this behaviour. This mode of operation makes it possible to identify successive cycles more accurately than in previous studies. A high level of agreement is observed between the results of this study and arguments in the literature regarding the causes shaping these short-run periods: the analysis demonstrates that exports were the key factor until 1932 while after this year consumption and investment came to predominate.

COVID-19 pandemic and connectedness across financial markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Abubakr Naeem ◽  
Saba Sehrish ◽  
Mabel D. Costa
Keyword(s):  
Financial Markets ◽  
Financial Risk ◽  
Negative Impact ◽  
Spillover Effect ◽  
External Shocks ◽  
Content Type ◽  
Time Frequency ◽  
Long Run ◽  
Short Run ◽  
Momentum Trading

Purpose This study aims to estimate the time–frequency connectedness among global financial markets. It draws a comparison between the full sample and the sample during the COVID-19 pandemic. Design/methodology/approach The study uses the connectedness framework of Diebold and Yilmaz (2012) and Barunik and Krehlik (2018), both of which consider time and frequency connectedness and show that spillover is specific to not only the time domain but also the frequency (short- and long-run) domain. The analysis also includes pairwise connectedness by making use of network analysis. Daily data on the MSCI World Index, Barclays Bloomberg Global Treasury Index, Oil future, Gold future, Dow Jones World Islamic Index and Bitcoin have been used over the period from May 01, 2013 to July 31, 2020. Findings This study finds that cryptocurrency, bond and gold are hedges against both conventional stocks and Islamic stocks on average; however, these are not “safe havens” during an economic crisis, i.e. COVID-19. External shocks, such as COVID-19, strengthen the return connectedness among all six financial markets. Research limitations/implications For investors, the study provides important insights that during external shocks such as COVID-19, there is a spillover effect, and investors are unable to hedge risk between conventional stocks and Islamic stocks. These so-called safe haven investment alternatives suffer from the similar negative impact of systemic financial risk. However, during an external shock such as COVID-19, cryptocurrencies, bonds and gold can be used to hedge risk against conventional stocks, Islamic stocks and oil. Moreover, the findings imply that by engaging in momentum trading, active investors can gain short-run benefits before the market processes any new information. Originality/value The study contributes to the emergent literature investigating the connectedness among financial markets during the COVID-19 pandemic. It provides evidence that the return connectedness among six global financial markets, namely, conventional stocks, Islamic stocks, bond, oil, gold and cryptocurrency, is extremely strong. From a methodological standpoint, this study finds that COVID-19 pandemic shock has a significant short-run impact on the connectedness among financial markets.

Dynamic and frequency connectedness across Islamic stock indexes, bonds, crude oil and gold

2019 ◽  
Vol 12 (3) ◽  
pp. 306-321 ◽  
Author(s):  
Nader Trabelsi
Keyword(s):  
Crude Oil ◽  
The United States ◽  
Asia Pacific ◽  
Volatility Spillover ◽  
Content Type ◽  
Time Frequency ◽  
Volatility Spillovers ◽  
Long Run ◽  
Portfolio Managers ◽  
Stock Indexes

Purpose This paper aims to investigate the connectedness of Islamic Stock Markets in five regional financial systems, namely, the United States, the United Kingdom, Europe (EU), GCC (Gulf Cooperation Council) and APAC (Asia-Pacific Countries), and across different asset classes (i.e. bonds, gold and crude oil). Design/methodology/approach This methodology is inspired by Diebold and Yilmaz (2012) and Barunlik and Krehlik (2017) for performing dynamic variance decomposition network and for studying time–frequency dynamics of connectedness at different frequencies. Findings Results show that the nature of connectedness over the past decade is time–frequency dynamics. The decomposition of the total volatility spillovers is mostly dominated by the long-run component. Furthermore, dominant regions are the largest contributors of spillover index, with the lowest contribution in the system coming from the GCC market. Results also reveal a slightly higher volatility spillover index of Islamic than conventional equity indexes. Finally, the system that encompasses commodities and Islamic finance instruments, generates the much lower volatility spillover. Originality/value The findings have significant implications for portfolio managers who are interested in being able to predict asset returns, as well as for policymakers who are concerned with market stability.

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.

Financial instability, integration and volatility of emerging South Asian stock markets

2017 ◽  
Vol 6 (2) ◽  
pp. 177-190 ◽  
Author(s):  
Rakesh Kumar ◽  
Raj S. Dhankar
Keyword(s):  
Stock Returns ◽  
South Asian ◽  
Stock Markets ◽  
Equity Markets ◽  
International Market ◽  
Portfolio Diversification ◽  
Financial Instability ◽  
Content Type ◽  
Long Run ◽  
Short Run

Purpose The purpose of this paper is to examine the short- and long-run spillover effect of international financial instability on emerging South Asian stock markets. The paper also investigates the financial integration regionally. Design/methodology/approach Granger causality test is used for short-run causal relations. Since results of preliminary test highlight the significant autocorrelations in stock returns, GARCH class models with extreme shocks in international financial market are utilized to test the long-run spillover impact on stock returns. Findings Results indicate significant short- and long-run spillover impacts of international financial instability on the stock returns. They highlight the significant co-integration of South Asian stock markets with the international market. Significant correlations in stock returns and volatility reveal the degree of regional integration to be high between India, Pakistan and Sri Lanka. Research limitations/implications Business, political and market conditions of South Asian stock markets are fundamentally different from each other. These economies were liberalized at different time, which in turn may affect the degree of integration with international equity markets and regionally alike. Practical implications Financial liberalization has linked the South Asian stock markets to the rest of the world. Stock prices move in the same line with the emergence of global expected and unexpected economic shocks. The benefits that arise from the diversification of funds will be eradicated in the long run. Investors with long investment horizons will not actually benefit from portfolio diversification in South Asian equity markets. The Bangladesh stock market does not respond to volatility in international market in the short run and may be a good destination for short-term investment. Originality/value Pioneer efforts are made by utilizing a novel approach with the use of net volatility change in world financial instability for measuring the short- and long-run impacts. Given the emergence of South Asian stock markets, new insights into their vulnerability to world financial shocks provide interesting findings for portfolio diversification.

scholarly journals Cross-Country Stock Market Integration and Portfolio Diversification Opportunities Evidence from Developed, Emerging and Frontier Countries

2020 ◽  
Vol 39 (1) ◽  
Author(s):  
Sultan Salahuddin ◽  
Muhammad Kashif ◽  
Mobeen Ur Rehman
Keyword(s):  
Stock Market ◽  
South Korea ◽  
Market Integration ◽  
Portfolio Diversification ◽  
Stock Market Integration ◽  
Country Level ◽  
Low Correlation ◽  
Long Run ◽  
Short Run ◽  
Cross Country

This study examines the stock market integration in cross-regional countries of developed, emerging, and frontier markets based on low correlation. The objective of the study is to identify the diversification opportunities and link between correlation and integration among country-level stocks. For this purpose, we select 62 countries from all three classifications of developed, emerging, and Frontier Markets. We constructed portfolios by selecting least 5 correlated countries denoted with Pjt in which each country has a correlation of less than .10 with base country Pit. Thirty-two countries fulfill the criteria of low correlation; 7, 13 and 12 from developed, emerging and frontier markets, respectively. Panel co-integration and VECM are applied to test the stock market integration and long & short-run linkages between country-level portfolios designed based on low correlation criteria. After conditioning for oil price movements, S&P 500 and exchange rate, we found Canada, France and Germany from developed category; Chile, Colombia, Greece, South Korea, Malaysia, Pakistan and Philippine from emerging category; and Bahrain, Jordan, Kuwait, Morocco, and Sri Lanka from frontier category have long-run diversification opportunities. Countries including; Canada and Italy from developed category; Argentina, Chile, China, Colombia, India, Indonesia, South Korea, Mexico and the Philippine from emerging category; and Bahrain, Kuwait, Morocco, Nigeria, and Tunisia from emerging category have short-run diversification opportunities.

scholarly journals Spillover effects from news to travel and leisure stocks during the COVID-19 pandemic: Evidence from the time and frequency domains

2021 ◽  
pp. 135481662110584
Author(s):  
Ying Wang ◽  
Hongwei Zhang ◽  
Wang Gao ◽  
Cai Yang
Keyword(s):  
Frequency Domain ◽  
Time Domain ◽  
Spillover Effects ◽  
Short Term ◽  
Time Frequency ◽  
Frequency Domains ◽  
Media Hype ◽  
The Time Domain ◽  
The Impact

The impact of the COVID-19 pandemic on tourism has received general attention in the literature, while the role of news during the pandemic has been ignored. Using a time-frequency connectedness approach, this paper focuses on the spillover effects of COVID-19-related news on the return and volatility of four regional travel and leisure (T&L) stocks. The results in the time domain reveal significant spillovers from news to T&L stocks. Specifically, in the return system, T&L stocks are mainly affected by media hype, while in the volatility system, they are mainly affected by panic sentiment. This paper also finds two risk contagion paths. The contagion index and Global T&L stock are the sources of these paths. The results in the frequency domain indicate that the shocks in the T&L industry are mainly driven by short-term fluctuations. The spillovers from news to T&L stocks and among these T&L stocks are stronger within 1 month.

scholarly journals Socio-Economic Determinants of Employment: A Case study of Pakistan

2019 ◽  
Vol 5 (1) ◽  
pp. 71-82
Author(s):  
Muhammad Atif Adeem ◽  
Muhammad Sibt-e-Ali ◽  
Raheel Akhtar
Keyword(s):  
Positive Relationship ◽  
Negative Relationship ◽  
Political Stability ◽  
Positive Relation ◽  
Economic Determinants ◽  
Long Run ◽  
Short Period ◽  
Short Run ◽  
Time Periods ◽  
High Level

This research is the foremost determination to investigate the long and short run affiliation amongst the variables of employment. For this purpose we use ARDL bound tests. The data from the period of 1972 to 2016 has been used in this research. These results indicate that employment has statistically significant and positive relationship between the variables of employment. Orders of integration of variables used in this analysis are I (O) and I (1). The results of this study show that per capita of GDP and expenditures of government have significant positive relationship with the employment in both time periods, the short and long run. Thenoteworthyempirical relationship is found in long run between GFCF, while in short period of time it shows destructive relation with employment. While FDI shows a high level of significant and positive relation both in long run and short run. Secondary school enrolment has significant and positive relation with employment in both time periods the long and short run time period. The relationship of money supply with employment in long run is positive while in short run it shows significant but negative relation with employment. Trade and political stability both are the main factors to estimate the strength of an economy. According to this study trade and political stability shows significant and positive relation with employment in long run while in short run both shows negative relationship with employment.

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.

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