Dynamic Connectivity in a Financial Network Using Time-Varying DCCA Correlation Coefficients

This paper aims to analyse the connectivity of 13 stock markets, between 1998 and 2019, with a time-varying proposal, to evaluate evolution of the linkage between these markets over time. To do so, we propose to use a network built based on the correlation coefficients from the Detrended Cross-Correlation Analysis, using a sliding windows approach. Besides allowing for analysis over time, our approach also enables us to verify how the network behaves for different time scales, which enriches the analysis. We use two different properties of networks: global efficiency and average grade, to measure the network’s connectivity over time. We find that the markets under analysis became more connected before the subprime crisis, with this behavior extending even after the Eurozone crisis, showing that during extreme events there is an increase in financial risk, as found in the international literature.

Does Foreign Presence Influence the Level of Firm Technical Efficiency? Evidence from Africa

This study investigates the impact of foreign direct investment on the level of firm technical efficiency in West Africa. Firms from Nigeria, Ghana, Sierra Leone and the Gambia were sampled due to the fact that they used to belong to the British Empire. The data, sourced from the World Bank enterprise survey, covers the period from 2006 to 2018, with the sampled countries having data for different years. A time varying stochastic frontier production function for panel was developed for this enquiry. The findings of the study show that foreign direct investment has a significant and positive impact on both technical efficiency and productivity of firms in West Africa. Controlling for other effects, international trade and firm size both have positive and significant effects on firm level technical efficiency. Therefore, policies should be aimed at encouraging more inflows and maintenance of the stock of foreign direct investment to avert divestments. This includes, but is not limited to, ensuring sociopolitical stability and introducing policies that would remove bureaucratic bottlenecks from the path of direct investment inflow and simplify the process of doing business in these countries.

A Probabilistic-Based Portfolio Resampling Under the Mean-Variance Criterion

An abundant amount of literature has documented the limitations of traditional unconstrained mean-variance optimization and Efficient Frontier (EF) considered as an estimation-error maximization that magnifies errors in parameter estimates. Originally introduced by Michaud (1998), empirical superiority of portfolio resampling supposedly lies in the addressing of parameter uncertainty by averaging forecasts that are based on a large number of bootstrap replications. Nevertheless, averaging over resampled portfolio weights in order to obtain the unique Resampled Efficient Frontier (REF, U.S. patent number 6,003,018) has been documented as a debated statistical procedure. Alternatively, we propose a probabilistic extension of the Michaud resampling that we introduce as the Probabilistic Resampled Efficient Frontier (PREF). The originality of this work lies in addressing the information loss in the REF by proposing a geometrical three-dimensional representation of the PREF in the mean-variance-probability space. Interestingly, this geometrical representation illustrates a confidence region around the naive EF associated to higher probabilities; in particular for simulated Global-Mean-Variance portfolios. Furthermore, the confidence region becomes wider with portfolio return, as is illustrated by the dispersion of simulated Maximum-Mean portfolios.

Can Market Making of Last Resort Calm the European Stock Markets? The Result of Quantile Regressions on a Sample of Six European Countries

Stock market indices are the benchmark of valuation uncertainty. Funding conditions can have an impact on the discounting process. Therefore time-premium, country-specific premia as well as (un)conventional monetary policy should be considered when studying market volatility. The aim of our research is to identify the effects of the unconventional monetary policy of European central banks on stock markets and to explore specific aspects of the relationship between domestic quantitative easing and the influence of the ECB, through the pattern of small, open economies in Europe. This study employs quantile panel regression to compare the 25% (calming) and 75% (stressed) scenarios of quarterly averaged conditional variance and compares them with an ordinary linear panel regression.

Asymmetric Impacts of Inflation on the US Bond Rates and FED’s Pre-Emptive Policy

This study investigates the asymmetric impacts of changes in inflation rates on the US bond rates. This investigation is constructed on the Fisher Equation. To this end, the nonlinear ARDL model is applied. Empirical findings indicate that only the decreases (π− t ) in inflation rates affect bond rates. This asymmetric impact therefore shapes the FED’s monetary policy in terms of determining the bond rates at lower cost. When the inflation rate rises, the FED will know (in advance) that they do not need to increase the bond rates. This reminds us the FED’s former pre-emptive strike policy against inflation.

Forecasting the Yield Curve for Poland

This paper evaluates the accuracy of forecasts for Polish interest rates of various maturities. We apply the traditional autoregressive Diebold-Li framework as well as its extension, in which the dynamics of latent factors are explained with machine learning techniques. Our findings are fourfold. Firstly, they show that all methods have failed to predict the declining trend of interest rates. Secondly, they suggest that the dynamic affine models have not been able to systematically outperform standard univariate time series models. Thirdly, they indicate that the relative performance of the analyzed models has depended on yield maturity and forecast horizon. Finally, they demonstrate that, in comparison to the traditional time series models, machine learning techniques have not systematically improved the accuracy of forecasts.

Analysis of Tax Compliance in Sub-Saharan Africa: Evidence from Firm-Level Study

This study analyses tax compliance among firms in Sub-Saharan Africa (SSA) within an extended Slippery Slope Framework (eSSF). It applies instrumental variables and generalized estimating equations models on a constructed World Bank’s Enterprise Survey longitudinal dataset. The results indicate that the perceived power of the tax authorities does not influence firms’ tax compliance, which could be linked to corruption in the form of informal payment. The results also show that corruption encourages the culture of tax non-compliance among firms in SSA because the defaulting firms bribe tax authorities in order to avoid paying taxes and being punished for that. In addition, the results demonstrate that the perceived trust of tax authorities (state representatives) is vitally important in encouraging tax compliance among firms in SSA. In terms of political decisions, it may be implied that gaining trust of taxpayers should be pursued.

The Dynamic Linkage between Money Market, Capital Market and Economic Growth in Ghana: New Lessons Relearned

This study is a comparative analysis of the effects of money and capital markets on the Ghanaian economy covering the period from 1991 to 2017 using the dynamic Auto Regressive Distributed Lag (ARDL) framework. Empirical results confirmed the existence of a unique and stable long-run relationship between the money market, capital market and economic growth. In respect of money market indicators, findings confirmed that monetary policy and treasury bills rate have had negative but significant impact on growth in the short- and long-run respectively. More so, total liquidity negatively and significantly influenced the Ghana-ian economy both in the short- and in the long run. Both market capitalisation and total value of stock traded, as proxies of capital market, had positive and significant effects on short-run growth, while both indicators as well as stock market turnover negatively and insignificantly a ected long-run growth. This means that capital market exerts a short-run impact on the country’s economy, while money market exerts both short- and long-run impacts. The lesson relearned is that the money market propels the Ghanaian economy better than the capital market.

Nutrition Intake, Health Status, Education and Economic Growth: A Causality Investigation

This paper examines the causal relationship between nutrition intake, health status, education and economic growth within a six-variate VEC framework, forecast error variance decomposition and impulse response function techniques, covering the period from 1990 to 2013, using quarterly data in Nigeria. This paper includes control variables in order to eliminate variable omission bias, unlike most existing studies. The results suggest the presence of long-run, bicausal relationships between the candidate variables of the study. In addition, the short-run unidirectional causal relationships are found between main variables, including a causal relationship running from nutrition and fiscal policy to education, as well as a causal link running from education and economic growth to health status. These findings support the existing theories. The results based on the model and empirical data suggest that the government should allocate more resources to human development in order to enhance productivity and boost economic growth. Similarly, there is a need to design adequate mechanisms to ensure proper allocation of the limited resources and avoid their embezzlement by corrupt government officials.

Exploring the Likelihood of a Country Being a Tax Haven Using MIMIC Models

The multiple indicators multiple causes (MIMIC) framework is used to analyze dimensions related to causation and indicators of tax haven status. Robust results were obtained that identify a country’s tax burden and area as causes of a country adopting policies usually observed in tax havens. The level of social security contributions as a proportion of public revenues and the ratio of indirect to direct taxes were found to be statistically significant indicators of tax havens. Data from 68 countries for more than twenty years were analyzed, enabling the results to contribute to a deepening of the current debate about tax havens and their socio-economic profiles.