International Research Journal of Finance and Economics
 Issue 129
 January, 2015
Asia-Pacific Region Stock Market Volatility: ADCC-EGARCH Model Analysis
Bruce Q. Budd and Catherine R. Budd

Estimations of impact on volatility of Asia-Pacific stock market returns are measured using the EGARCH model, proposed by Nelson, (1990). Dummy variables for the global financial and Eurozone debt crises are employed to capture any statistical impact. One distinctive feature of the EGARCH (1,1) model is to capture the leverage effect of volatility. Further investigations use the two-step procedure framework DCC-EGARCH model to capture any trace of co-movement or changes over time in the patterns of these national market indices. The empirical mean results display that the GFC had a significant and negative impact on the stock returns for Australia, China, but not South Korea. Coefficients representing the impact of the Eurozone Debt Crisis are negative and significant for all but South Korea which revealed no statistical response. Evidence of the presence of volatility clustering for all markets is significant and positive in the coefficients for the ARCH term. Volatility of the EGARCH model shows all coefficients to be low and significant except for China. The parameters for leverage effects are significant and positive for all countries. Evidence of the impact from the GFC was positive and significant for all countries except South Korea. The DCC results, consistent with prior literature, show the degree of stock market integration is changing over time.
Keywords: Asia-Pacific region, DCC-EGARCH, Volatility.
JEL Classification: C33; G11; G14
Information Transmission of International Stock Market and Domestic Futures Market: Evidence from Taiwan Stock Market
Tsung-Ying Tsai, Yu-Min Lian and Szu-Lang Liao

We construct a model based on market microstructure and examine the information transmission effects of global and domestic impact factors on the Taiwan capitalization weighted stock index (TAIEX). We use the Standard and Poor’s (S&P) 500 closing index and open interest from the Taiwan Futures Exchange (TAIFEX) to represent the global and domestic impact factors, respectively. Examining the trading behavior of foreign and domestic institutions by observing open interest in the futures market reveals the private information of these institutions. The empirical results of our study show that both the lagged S&P 500 closing index and open interests of foreign and domestic institutions significantly affect the TAIEX opening index. In addition, the results indicate that the influence of the global impact factor is more significant than that of the domestic impact factor.
Keywords: Stock market, Futures market, Information transmission, asset pricing, Market microstructure
JEL Classification: G12, G14, G15
Measurement Test by the Value at Risk (VaR) Risk of a Portfolio of Shares Listed on the Stock Exchange Values Casablanca
El Haddad Mohammed and Moussaif Loubna

In this article, we will try to implement and compare in detail the main methods of estimating VaR used to know the historical method, the Monte Carlo simulation, the variance-covariance method and finally the RiskMetrics method.
To do this, we chose to work on a portfolio of all securities of the MASI index of the Casablanca Stock Exchange. Our research will be organized around four points, namely the presentation of the "floating MASI" index, the choice of the sample of securities selected, the study and comparison of different evaluation methods in VaR and finally determination the adequacy of the chosen model to the portfolio using backtesting by conducting two binomial tests, namely the regulatory backtesting and Kupiec test.
Keywords: VaR, historical method, the Monte Carlo simulation, the variance-covariance method, RiskMetrics. backtests
Earnings Quality and Information Asymmetry in Tehran Stock Exchange
Daruosh foroughi and Meysam Arabzadeh

This research aims to study the effects of earnings quality on information asymmetry. To measure earnings quality, the model introduced by Francis et al (2005) has been employed, and the model provided by Huang and Stoll (1996) as well as the one by Venkatesh and Chiang (1986) have been used to calculated information asymmetry. The data required for this research have been collected from 104 firms listed on Tehran Stock Exchange for the period of time from 2008 to 2012. The regression model of this research uses panel data method with fixed effects approach. The results of the research show that there is a significant relation between earnings quality and information asymmetry.
Keywords: Earnings quality, information asymmetry, percentage effective spread, percentage price impact, bid-ask spread
Determinants of Capital Adequacy Ratio in Malaysia Islamic Banks (A Panel Data Analysis)
Tahraoui Asma and Khaldi Khadidja

The purpose of this study is to investigate the determinants of Malaysia Islamic banks capital adequacy ratio and its effects on financial positions of banks covered by the study. Data are obtained from banks' annual reports; other proxies were collected from bankscope database for the period 2006 - 2011.
Capital adequacy ratio is the ratio which determines the bank's capacity to meet the time liabilities and other risks such as credit risk, operational risk etc. In the most simple formulation, a bank's capital is the "cushion" for potential losses, and protects the bank's depositors and other lenders. Banking regulators in most countries define and monitor CAR to protect depositors, thereby maintaining confidence in the banking system.
Panel data methodology is used in this study and analyzes relationships between independent variables; bank size (SIZE), operational efficiency (OPR), liquidity risk (LQR), profitability (ROA and ROE), Credit risk (CR) and a dependent variable which is capital adequacy ratio (CAR).
The results of the paper indicate that Credit risk (CR) and return on equity have a negative effect on CAR, while return on assets positively influence CAR. On the other hand operating efficiency (OPR), Liquidity risk (LR) and Bank size (SB)do not appear to have any significant effect on CAR.
Keywords: Islamic banks, capital adequacy,determinants of capital adequacy ratio.
Abnormal Capital Returns in the Brazilian Market: An Investigation of the Short-Term Contrarian Investment Strategy
Matheus B. S. S. Guimarães, Macelly Oliveira Morais, Antonio Carlos Figueiredo Pinto and Marcelo Cabus Klotzle

The objective of this study is to test the possibility of obtaining abnormal capital returns over a very short term during the sample period January2003 to December2012 for shares listed in the Brazilian stock market. We have investigated the hypothesis of employing the strategy ofshort-term contrarian investing associated with a selection of assets (shares) based on the criterion of decreasing order of the multiple Price per Book Value per Share (P/BVPS). The assets constituting the existing portfolios of the IBrX-100 Index were arrangedin a decreasing order. Subsequently,contrarian strategies were applied and tested tothe portfolios, which consisted in being long in “loss” shares and sold in "gain" shares. We found empirical evidence favoring the combination of the value and momentum strategies and, consequently, supporting the possibility of abnormal returns. However, the statistical test conducted failed to reject the hypothesis of the significance of the results. Finally, weexplored the existence of residual returns, expressed by the "Jensen’s Coefficients." Nonetheless, the statistical test executed was yet again unable to confirm the significance of the results.
Keywords: Abnormal Capital Returns, Price per Book Value per Share, Strategy of Short-term Contrarian Investing, Behavioral Finance
A Quantitative Analysis of the Determinants of Egypt’s Ready Made Garment Exports over 2002-2009
Abeer Elshennawy and William Mikhail

Egypt's exports of ready -made garments steadily declined over the period 2002-2009 despite the significant devaluation of the Egyptian pound, in addition to several other measures that were introduced to stimulate exports including an export subsidy and institutional reform. Estimating an export supply function for this sector revealed that devaluation – contrary to what theory predicts -played an important role in reducing exports. The estimated equation gave excellent statistical fit and all the variables were cointegrated. An error correction model was estimated to assess both short run and long run relations, and to provide an alternative for checking the robustness of our model.
Keywords: Egypt, Ready- made garments, Export supply, Devaluation, Tariff protection, Export subsidies, Institutions, Multifiber agreement
JEL Classification: E20, F13
Corporate Governance in Kuwait an Empirical Analysis
Shereef Ellaboudy

Corporate governance institutional arrangements in the Middle East and North Africa region have experienced substantial changes in the last ten years. The enforcement of corporate governance regulations, especially in the last five years has surfaced as both a public policy debate and a priority for countries in the MENA region, especially in Kuwait. The focus on applying strict and enhanced enforcement is a reflection of the geopolitical and economic transformation that countries in the region have experienced. The international call for better surveillance, the implementation of governance rules and the need to address low foreign direct investment in the region were behind some of the recent changes. This paper examines the extent and the variation in which corporate governance is being applied at different sectors and ownership types in Kuwait. It highlights how corporate governance affect performance and market valuations of the firm. This paper provides policy recommendations regarding certain aspects of corporate governance like the ones that deals directly with board member responsibilities, shareholder rights and financial transactions, which, if better regulated, could result in more effective governance enforcement in the region.
Keywords: Corporate governance, Middle East and North Africa, enforcement, investor engagement, shareholder rights, minority shareholder, board appointment, securities regulator, stock exchange, companies law, listing requirements.
JEL Codes: E58, G01, G20, G21
Economic Shocks and the Choice of Exchange Rate Regime: The Case of Syria
Linda Ali Ismaiel and Alaa Zyad Khzam

The main aim of this study is to investigate the relative importance of domestic and external economic shocks in explaining the variations of the real GDP in Syria for the period 1990-2010, and utilize that on choosing the appropriate exchange rate regime based on the Mundell-Fleming model. For that purpose, the Impulse Response Function (IRF) and the Forecast Error Variance Decomposition (FEVD) from the Vector Auto Regressive (VAR) model are used. The results reveal that terms of trade shock is the main source of real GDP variations in Syria during the period 1990-2010, therefore, the move toward more flexible exchange rate regime (pegging the Syrian Pound to the SDR), that took place in 2007, seems to be an appropriate decision in order to stabilize the economy in the short and medium-term.
Keywords: Syrian Economy, Exchange Rate Regime, Domestic Monetary Shock, Domestic Spending Shock, International Trade Shock, Real GDP, Vector Auto Regression (VAR), Impulse Response Function, Forecast Error Variance Decomposition.
JEL Classification: C3, E5, E6, F3, F4
Revisiting the Expiration Hour Effect: A High Frequency GARCH Analysis
K Kiran Kumar and R L Shankar

Significant differences in statistical properties of stock returns during expiration and non-expiration days have been advanced as an evidence for the destabilization effect (or lack thereof) of derivative instruments. The earlier studies have, however, drawn their conclusions without rigorously modelling the underlying stochastic data generation process. Given that the statistical properties mentioned before are merely traits of the asset returns, this approach can lead to spurious results if analysed in isolation of the underlying process. We propose to address this crucial shortcoming by examining the expiration day effect from a GARCH framework. We use both daily and high frequency (5 minutes and 10 minutes) data on S&P CNX Nifty Index. Our central finding using intra-day data is that while there is no pressure – downward or upward - on index returns, the volatility is indeed significantly affected by the expiration of contracts. This effect, however, doesn’t show up in daily data.
Keywords: Futures Markets, GARCH, Expiration day, Intraday data analysis
JEL classification: G12, G14, G19