Stock Market Efficiency in South Eastern Europe

The purpose of this chapter is to empirically test the informational efficiency and to examine the presence of the calendar effects in 10 South Eastern European (SEE) stock markets' daily returns during the period 2007–2014. The authors use variance ratio test for exploration of random walk hypothesis. Regarding the calendar effects, the authors focus on the day-of-the-week effect, the half-month effect, and the turn-of-the-month effect. The existence of each calendar effect is analyzed by applying regression models with dummy variables for the effects in the mean returns and GARCH (1,1) models with dummy variables for the effects in the volatility of returns. The results indicate that the day-of-the-week effects in both mean and volatility are present in nine SEE stock markets. Contrary, the half-month effect in mean returns is present only in one, while half-month effect in volatility is present in five SEE stock markets. The turn-of-the- month effect in mean returns is present in six, while the turn-of-the-month effect in volatility is present in all 10 SEE stock markets.

Market Challenges, Risks, and Policy

This chapter first examines what caused the need to regain global stability after the financial crisis. The author provides a brief refresher of how the market crash in 2008, and subsequent Great Recession, was initially fueled while honing in on the allocation of “the fuel” coupled with the repeals of bicentennial-long legislation and the associated dangers of these economic policy changes. Notations from Nobel laureates and interagency economists from the IMF and World Bank aid in identifying the consequences of these policy decisions while simultaneously illustrating the enhanced risk within a variety of markets. Next, the author discusses the current state and relative stability of the financial markets, economic policy, and the risks associated therein. Lastly, this chapter provides recommendations for the future of monetary and fiscal policy, globalization, and what the government (and Wall Street) must consider should they seek to attain long-term financial stability from an international perspective. Monetary and fiscal policy decisions implemented and in-progress by the Federal Reserve are fastidiously examined throughout this chapter.

Land, Debt, and Socialist Market Economy of China

Is China's development model an alternative to the Western model? The public ownership of land is the major character of the market economy of China. China's local governments take the land under their regional control as the startup asset, playing an active role in promoting China's industrialization and urbanization. One cannot understand China's model without understanding its development logic, involving land, debt, and local government. This chapter makes an in-depth observation the role of land and the financing based on land played in the cycle of capital flow that feeds China's development. Land financing is responsible for debt accumulation on the local government level, especially the period after the financial crisis of 2008. This chapter points out the paradoxical nature of China's dual-track system of land ownership and analyzes its inherent problems in the context of China's contemporary political-economic arrangement.

Globalisation and the Composition of the Welfare State

The aim of this chapter is to examine the relationship between globalisation and the size of the welfare state taking into account the respective composition. The efficiency hypothesis argues that globalisation leads to a reduction in the size of the welfare state since this can harm international competitiveness and drive away capital flows, while the compensation hypothesis poses that globalisation induces an increase in the welfare state in order to provide citizens with wider coverage against the risks of globalisation. This relationship is analysed for 31 OECD countries over the period 1980-2010 using data on social expenditures and the KOF Index of Globalisation and their different components. The results obtained indicate that overall there is a positive association between globalisation and the size of the welfare state, more intense for spending on housing-related benefits, active labour market programs and other social policy areas, and mostly felt through political globalisation. Globalisation loses significance for the explanation of family and unemployment benefits.

The Business Transformation and Enterprise Architecture Framework

Business transformation projects and enterprise architecture projects for enterprises' business and their financial strategic planning process are essential to prepare the enterprise to integrate the local and the global economies in a sustainable and iterative way. The needed strategy for the integration of financial-engineering-related risk and legal controls is fundamental for its long-term vision and business longevity. Probably because of the ongoing financial uncertainty, these finance-related risks and legal standards are not mature and are even chaotic, so these facts can damage the business transformation project or an enterprise architecture project, and they may disable the traditional business environments to be a part and to compete with the networked global economy.

Governance and Institutions for Stability and Growth in the Eurozone

This chapter aims to contribute to the debate on which kinds of governance and institutions are needed to ensure stability and growth in the Eurozone. Despite the economic recovery, the Eurozone does not have effective institutions to ensure stability in the face of a new economic crisis (without forgetting legitimacy, transparency, and the ability to meet the expectations of greater prosperity for Euro-area citizens). This chapter supports the view of a deep rethinking of the European monetary union (EMU) with a different governance and institutions. The new governance should imply a renewed political agreement among member states in both the Eurozone and the European Union (EU). This political agreement must lead to a reconsideration of the Maastricht parameters, a different approach of European institutions, and a change of the EU treaty. This chapter also discusses the role of institutions in balancing European interests with those of member states to provide a consistent approach to stability and growth.

Shocks in Global Economy

This chapter represents an attempt to analyze the role of shocks (impulses) in business cycles in the world economy in connection with the global financial crises of the late 2000s. The theoretical explanation of the origin of any economic shock (external impulse), of economic systems' reaction to it, as well as of the way the global shocks spread its influence all over the world suggests that the analytical predictions of E. Slutsky and R. Frish can be correct. The results provide some evidence for the hypothesis that the cyclical model of development of any economic system means its adjustment to new conditions caused by external impulses (shocks). To reinforce the findings, some results associated with other theoretical investigations and analytical researches are presented.

Dynamic Risk Management of Investment Portfolio by Futures Contracts

This chapter is devoted to the dynamic risk management of the investment portfolio using future contracts. The number of futures for each portfolio asset, which is determined by portfolio effectiveness and acceptability of risk at each step, serves as a control parameter. The authors define effective portfolios as the ones of the minimum variance with the expected return greater than or equal to the specified value. Risk is measured by the probability of losing a certain part of the portfolio value. Effective adaptive strategies of portfolio risk management are proposed and their comparative analysis is carried out on a concrete example. In order to determine risk management strategies, the authors implement simple methods of volatility forecasting and correlation of relative changes of price data based on exponential moving average.

Importance of Fiscal Fundamentals for Sovereign Risk Spread

The chapter examines the importance of fiscal fundamentals for sovereign risk spread in the period of 1995-2015, and its goal is to test whether stronger fiscal discipline reduces sovereign risk premiums. The empirical evidence is based on unbalanced annual panel data of 15 EU countries (its time span is divided into a pre-crisis and a post-crisis period). The study applies the generalized method of moments. Evidence shows that before the financial crisis, investors generally ignored bond risk factors in individual countries, but that the spreads sharply diverged starting from the year 2008. The results confirm a statistically significant impact of fiscal fundamentals on government bond yield spread. The improvement of the governments' fiscal position reduces sovereign yield spread. In a post-crisis period, findings report the raising of the importance of fiscal variables for spread, and GDP growth became a major determinant of government bond yield spreads, followed by the budget balance and debt development.

Financial Integration

Financial integration is an inseparable part of economic integration. It affects capital movement and economic development. Certain studies have shown that financial integration is beneficial to the economy. However, integration may be slowed down by occurrence of a crisis. Over the past 10 years, several crises have been underway. They have affected both economic development and financial integration. The aim of the chapter is to present theoretically the relation between financial integration, crisis, and economic development. An overview of EU and SEE financial integration and economic development is given. Development and integration of both regions have been slowed down due to the global and EU crisis, but there has been an improvement over the past few years. The fact is that SEE countries do not have a very developed financial integration but they meet certain prerequisites to reach a higher level of integration.