International Research Journal of Finance and Economics
 Issue 107
 March, 2013
Gold, Stock Price, Interest Rate and Exchange Rate Dynamics: An MS VAR Approach
Süleyman Hilmi Kal, Ferhat Arslaner and Nuran Arslaner
Holding on gold as an asset has been considered a traditional safe haven for risk averse investors even though holding gold has no yield other than capital asset, especially during the volatile economic periods. Under the Breton Woods agreement the exchange rate is fixed by agreement and the price of gold has become volatile and steadily has been increasing against all of the major currencies. In this study, it is investigated that whether the relationship between gold, interest rates, exchange rates and stock market yields vary depending gold oil ratio. A two state time varying transition probability Markov switching (MS) process to the vector auto regression (VAR) estimation of macro financial variables. The switching between the states of the Markov process is linked to the volatility of gold and the macro financial variables to understand the transition dynamics between states. Results indicate that the interrelationships between the macro financial variables and gold prices are state dependent and volatilities of the variables have a statistically significant effect on the transitional dynamics of gold prices between the states.
Keywords: Gold Price, Gold Oil Ratio, Stock Price, Interest Rates, Exchange Rates, Time Series Analysis, Markov Switching Regimes
JEL Classification: C22, E44, G12
Prediction the Relation between Audit Fee and Financial Variables by using of Artificial Neural Networks
Seyed Ali Vaez, Mohsen Rashidi Baghi, Mohsen Shiralizadeh and Saeed Farzadi
Time changes of audit fee rates, inefficiency studies performed and presence of effective factors on audit fee rate are caused development modern and intelligent methods in estimation and evaluation of audit fee in stock companies. Aim of this research is prediction the relation between audit fee and financial variables by using of artificial neural networks. Independent variables in this research are earning per share and operation cash flow and dependent variable is audit fee. Thereby, research variables gathered for 72 stock companies during the 5 years. The obtained outputs from estimation of the artificial neural networks and results obtained from estimation, using of this method with evaluation scales are (MAE = 0.55 and MSE 0.63, R=0.28). Concerning random amount and comparing it with R=0.28, we found that there is meaningful relation between the associated variables and audit fee and such network has the least error than other Networks (MAE=0.55, MSE = 0.63).
Keywords: Audit Fee, Prediction, Artificial Neural Networks, Earning per Share and Operation Cash Flow.
Crowding Out Effect of Public Borrowing: The Case of Egypt
Mona Esam Fayed
The relationship between government borrowing and private credit is usually thought of as a negative one in the policy discussions and financial media. However, at least on a theoretical level, the relationship is ambiguous. In light of the recent excessive public borrowing from domestic sources in Egypt, a cointegration approach is used to investigate the relationship between public borrowing and private credit. The paper sheds light on the "quantity channel" of crowding out of private investment in Egypt by focusing on the volume of private credit. It concludes that government borrowing from the domestic banks crowds in private credit. This is due the strong risk diversification effect because of safe government assets in banks portfolios. However, this positive impact may be reversed in the case of a substantial increase in Treasury bill rate, as compared to lending interest rate. This leads to a crowding out effect.
Keywords: Government Borrowing; Private Investment; Private Credit; Domestic Banking Sector; Crowding Out; Crowding In; Risk Diversification Effect.
Measuring the Degree of Competition in the Arab Banking Systems
Ali Awdeh, Ahmad Salloum and Elie El Hokayem
The Arab banking sectors are characterised by high level of concentration, which could have a negative impact on competition and the competitive behaviour of banks according to the Structure-Conduct-Performance paradigm. Using a flexible translog revenue function, we found that high concentration has not provided Arab banks with significant market power. Besides, we found a higher competitive behaviour of banks operating in Lebanon, Bahrain, Saudi Arabia and the UAE than in the other Arab countries.
Keywords: Banking; Competition; Panzar-Rosse Model, Market Structure.
Oil and Stock Markets Interactions: Evidence from GCC Countries
Mohammed Abu Ali, Karim Mimouni and Moh’d Al-Azzam
This paper reexamines the linkage between the crude oil prices and the stock markets using data from GCC countries. Prior literature has found some support for the relationship between oil prices and macroeconomic variables such as GDP and unemployment rates. However, despite the recognition of the impact of oil-price volatility on the real economic activity, there is little empirical evidence on the impact of the rapid and unexpected change in oil prices on stock prices. This lack of such empirical evidence is even more puzzling when we consider GCC countries where oil revenues represent approximately fifty percent of their GDP and where a large percentage of their imports come from net oil-importing countries. We expect financial markets including stock markets in GCC countries to show variations in line with oil price changes. Using the GARCH (1,1) specification to model the price dynamics, we find strong evidence that oil price and stock price volatilities are highly correlated. Therefore, large price variation in one of these markets will translate into large variation of prices in the other market and vice-versa. The implications of our findings are two folds. First, policymakers in GCC may need to abandon the use of hydrocarbon revenues to maximize short-term political and economic goals by diversifying their economies away from being oil-dependent. Second, investors in GCC stock markets need to take into account these volatility interrelations to assess the risk of their stock portfolios rather than just engaging in the conventional buy-low and sell-high strategy.
Keywords: Volatility, crude oil, stock indices, correlation, GARCH
Threshold Effects of Sovereign Debt: Evidence from the Caribbean
Kevin Greenidge, Roland Craigwell, Chrystol Thomas and Lisa Drakes
This paper addresses the issue of threshold effects between public debt and economic growth in the Caribbean. The main finding is that there exists a threshold debt to gross domestic product (GDP) ratio of 55–56 percent. Moreover, the debt dynamics begin changing well before this threshold is reached. Specifically, at debt levels lower than 30 percent of GDP, increases in the debt-to-GDP ratio are associated with faster economic growth. However, as debt rises beyond 30 percent, the effects on economic growth diminishes rapidly and at debt levels reaching 55–56 percent of GDP, the growth impacts switch from positive to negative. Thus, beyond this threshold, debt becomes a drag on growth.
Keywords: Debt Problems, Debt Threshold, Panel Data, Threshold Regressions
JEL Classification Numbers: F34, C23, C24
Strategic Management Perception in Public Services
Emel Bahar
In developed countries, proactive approaches that involve collaboration with citizens and provide similar results at smaller costs are preferred for the management of services provided by the police in order to determine the causes of the crime in an analytical way and preventing the crime. In Turkey we also notice applications that similar applications try to put in use such an approach for police services. Therefore, this research aims to determine the adequacy of services provided by Tarsus Police Department, satisfaction of the citizens and perception of Police among citizens of Tarsus. Moreover, this research also aims to find out if the demographic features of Tarsus citizens have any effects on police services and perception of Police as a profession. Data used for the research is gathered from Tarsus province of the city of Mersin through the method of survey. Results showed that citizens of Tarsus are determining their perception of police services and police as a profession under the influence of 8 different factors. We found out significant differenciation between these factors and the demographic features of the citizens. In accordance with the findings, this research tries to put out proposals for rational usage of resources during services provided by the police to the citizens of Tarsus and improve the relation between the police and citizens.
Keywords: Police units; strategy development; proactive study; public relations; service satisfaction.
How Does Income Multiple of Mortgage Loan Influence Home Repossession in the UK? Evidence from a Macro-Level Data
Joseph A. Bamidele and Oladiran A Ayodele
This paper presents the findings of the study that examines how income multiple for mortgage loan associates with home repossession in the United Kingdom using macro-level data from the Council of Mortgage Lenders. The study employs a statistical measure for improving regression efficiency with conditioning information in the form of lagged instrument to unravel the pattern of association evident from the data. The study investigates what level of income multiple is optimum – that is the income multiple that minimizes home repossession. The evidence shows that an 18-month and 21-month lags of income multiple generate the best fit in mortgage repossession actions and orders respectively; and income multiples ranging between 2.4 and 2.6 minimize repossessions across the market segments tested – which are: first time buyers, home movers, and the aggregate market.
Keywords: Mortgage; Repossession; Affordability; Income Multiples; Lagged Instrument
Major Problems Faced by Farmers in India during the New Agricultural Reforms
K. Vivekanandan, P.S. Ravichandran, R. Marimuthu, K. Arul, P. Amalanathan, R. Mohanraj, S. Nagarajan, K. Ramesh Kumar A. Ponnusamy and T.N. Srinivasan
“All human toil is for the mouth, yet the appetite is not satisfied” -Bible This is true in agriculture in too. Our politician shout , preach from platforms that farmers are the back bone of the country’s economy,but in reality the backbone lies fractured and our politicians are just not bothered our farmers problem. Agriculture in India is often attributed as gambling with Monsoon because of its almost exclusive dependency on Monsoons. The failure of these monsoons leading to series of droughts, lack of better prices, exploitation by Middlemen have been leading to series of suicides committed by farmers across India. In the 1990s India woke up to a spate of farmers suicides. The first state where suicides were reported was Maharashtra. Soon newspapers began to report similar occurrences from Andhra Pradesh, Vidharba.This paper discuses the trend of formers suicide in India thereby create the awareness to change the policy and production trend in agriculture in India.
Keywords: Suicides, Exploitation, Epidemic, Price Crash in one year, Failure of Rainfall, Agrarian Crisis
Validation of Consumer Ethnocentrism Scale (CETSCALE): Structural Equation Modeling Approach
R. Renganathan, S. Balachandran and V. Vijay Anand
Consumers’ buying decision is generally based on country of origin with regard to purchasing of foreign or domestic products or services .Consumer ethnocentrism plays a vital role in consumer purchase decision making process. Main aim of this study is to ascertain the college students’ opinion pertaining to various aspects of ethnocentrism. With some modifications CETSCALE propounded by Shimp and Sharma (1987) was utilized for this study. 301 college students from various branches of studies were included for this study. In order to test the model and hypothesis, Structural Equation Modeling was used. The findings of the research showed Consumer ethnocentrism scale had high reliability and college students gave their most favourable opinion for the statement “In order to keep India as a vibrant country always buy products made in India” in the CETSCALE.
Keywords: Ethnocentrism, CETSCALE, Consumer behaviour, Structural equation modeling (SEM), Confirmatory factor analysis.
The Relationship between Macroeconomic Variables and ISE 100 Index Returns during the Quantitative Easing Policies of USD Federal Reserve: Evidence from Turkey
Menevse Özdemir and Serkan Yesilyurt
This paper investigates the relationship between macroeconomic variables and ISE 100 index return during quantitative easing periods which are conducted by Federal Reserve ("QE1" in 2008-2009, "QE2" in 2010 and “QE3” in 2012) in Turkey. The monthly data of ten macroeconomic factors (growth rate of industrial production index, change in consumer price index, growth rate of narrowly defined money supply, change in exchange rate, Istanbul Stock Exchange overnight repo rate, growth rate of international brent oil price, return of MSCI World Index, change in foreigner trading share in Istanbul Stock Exchange (ISE), growth rate of international gold price and trade deficit of Turkey as of total trade volume) are used for the period from January 2006 to October 2012. OLS regression model is run to indicate the relationship between these variables and ISE 100 index returns and the existence of a structural shift is investigated by using Chow Test and Cusum tests. Empirical findings reveal that while foreigner share, trade deficit, change in consumer price index and return of MSCI World Index seem to affect the return of ISE 100, quantitative easing periods do not cause a structural shift on ISE 100 index return. This study has limited with pre-mentioned variables and all other influential variables are not considered.
Keywords: Macroeconomic variables, ISE 100 index returns, Quantitative Easing.
Asymmetry and Non-linearity in Monetary Policy of a Small-Open Economy: Evidence from Taylor Rule
Serkan Çiçek
This paper investigates the non-linear behavior of the policy reaction function of the Central Bank of the Republic of Turkey (CBRT) during the Inflation Targeting (IT) period of 2002:M1-2012:M4 by employing Smooth Transition Auto Regression (STAR) models developed by Terasvirta (1998, 2004) which allow for the possible presence of non-linearities in data. Our data suggested using the quadratic logistic function which was employed by Martin and Milas (2004) because it fits better to reaction functions. Our results reveal that the CBRT tried to keep the expected inflation gap within a range when the expected inflation gap was used as a transition variable. The reaction of the CBRT was mild when the expected inflation gap was inside the range, otherwise it became drastic. These findings provide evidence suggesting that monetary policy behavior of the CBRT is best described by the non-linear forward-looking Taylor rule rather than being linear or backward-looking during the IT period.
Keywords: Non-linear Taylor Rule, Asymmetric Preferences, Quadratic STAR Model, Turkish Economy.
JEL Classification Codes: C32, E52, E58
The Effect of Economic Freedom on Economic Growth: A Panel Data Analysis for 12 Islamic Countries
Salih Türedi
In this study, the effect of economic freedom on economic growth was tested for 12 Islamic countries over the period 1995-2010 by utilizing panel data. Economic growth was represented by GDP per capita while economic freedom was represented by two different indices, which were the Index of Economic Freedom (IEF) and the Economic Freedom of the World (EFW) published by the Heritage Foundation and the Fraser Institute respectively. The relationship between the variables was tested via fixed effects panel data technique. Carried out based on two different freedom indices, the econometric analysis showed that economic freedom makes a positive and statistically significant contribution to growth in the examined Islamic countries.
Keywords: Economic Freedom, Economic Growth, Islamic Countries, Panel Data
JEL Classification Codes: O20, O40, O53, C23
Historical Overview of Financial Policies in Developing Countries
Giseok Nam
In this study I reviewed the financial policy in the context of historical evolution of financial structure associated with the stages of economic development in developing countries. At the very early stages of economic development with the underdeveloped financial sector, the government is often the only catalyst for economic growth, and should take an initiative in starting the process of economic growth by creating and nurturing financial markets with active interventionist policies within a broad framework of industrial policy. However, relatively at the advanced stages of development as the economic growth starts and accelerates, the financial structure become increasingly complex and sophisticated, the market forces should be harnessed and replace the government interventions.
Keywords: Financial Policy, Financial Market, Government Intervention, Developing Country
JEL Classification: G21, G28
The Roles of Organizational Leaders for Sustainable Business
Chalieo Vitoorapakorn, Ornpapha Chutikorntaweesin, Thuchapon Yodthong and Nitcharat Sangthong
The purposes of this research paper were to study the attitudes, concepts and roles of organizational leaders for sustainable business with application of merit, ethics, and management quality. The samples in this study were 9 subjects of organizational leaders of Small, Medium, and large Enterprises. This research is qualitative with open-ended questions and in-depth interview; collected data were described with documentary analysis. The research results showed that the roles of leaders are the most important factors for sustainable progress of business corporations. Leaders with good merit and ethics are able to lead organizations to be successful and create a sustainable prosperity to the organizations.
Keywords: Organizations, leaders, sustainable business, and good governance