International Journal of Monetary Economics and Finance
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International Journal of Monetary Economics and Finance (6 papers in press)
Treasury triplets and the efficiency of the US treasury marketplace
by Anne M. Anderson, Richard J. Kish Abstract: We analyse the efficiency of the US Treasury bond market during the current period of historically low interest and inflation rates by comparing the prices of the middle triplet bond with a portfolio of the low and high bonds based on coupons. We uncover 103 arbitrage opportunities for 22 triplets with maturities ranging from 1 to 11 years using daily prices retrieved from Bloomberg from 23 August, 2018, to 23 August, 2019. Our analysis of US Treasury triplets indicates that, in general, the US Treasury Market is efficiently priced, however, there are instances where short periods of
inefficiencies exist. Since the market is highly liquid and the transaction costs are relatively low, arbitrageurs could make short term profits by purchasing and selling the opposite sides of the mispriced bonds. Our study reinforces the work by Fontaine and Nolin (2019).
Keywords: efficiency; arbitrage; treasury securities; bonds; asset pricing. DOI: 10.1504/IJMEF.2021.10038706
Complexity of exchange rate movement, analysis and volatility forecasting models: a review by Alexander Amo Baffour, Kofi Nyarko Gyimah, Alexander Owiredu Abstract: For obvious development in literature, various researchers and experts have relied on their area of expertise in the field of financial econometric to prove a substantive performance of one model or the other for volatility forecasting and analysis. Subsequently, no single model seems to be adequately suitable for the analysis of exchange rate movement and volatility. However, this paper is opposed to the random walk beliefs model as compared to the core findings by other empirical studies reviewed. We conclude that every currency has the strength which is determined by economic fundamentals such as, but not limited to, inflation, interest rate, balance of payment, national reserves, and which affect the volatility of exchange rates with respect to time. The study provides a very insightful summary of the development in finance concerning the complexity of exchange rate movement and volatility analysis
models and together suggest a potential path for prospective researchers Keywords: exchange rate modelling; market efficiency and purchasing power parity; stochastic and ANN models; fundamental theory; technical models; hybrid models; monetary theory; asset theory. DOI: 10.1504/IJMEF.2021.10039411
Assessment of return and volatility spillover across sectors indices: evidence from Pakistan stock exchange by Hafiza Muntaha Khalid, Sadia Farooq, Faiza Liaqat, Muhammad Naeem Abstract: This paper examines the dynamics of return and volatility transmission between several sectors of Pakistan Stock Exchange (PSX). We employed GARCH(1,1) model and our results demonstrate that the most influential sector regarding the return spillover is power generation and distribution sector, and regarding volatility spillover, highly influential sector is automobile sector indicating that these sectors are the main drivers of spillover effect. Whereas, the most suggested sectors for investment are Automobile Assembler and Power generation and distribution sectors, as these are least
influenced by other sectors spillover. The investors and portfolio managers can use such findings as a guideline in making a healthy portfolio resulting in reduced risk to their investment. The well-informed decisions of the investors can, in turn, facilitate the growth of economy. Keywords: return; volatility spillover; PSX; Pakistan Stock Exchange; GARCH(1;1); sectors’ indices; portfolio diversification; investment. DOI: 10.1504/IJMEF.2021.10040253
Threshold effects of inflation on the financial development-economic growth nexus in Tunisia by Kamel Helali, Khoutem Ben Jedidia, Thouraya Boujelbène Abstract: The main purpose of this paper was to ascertain the effect of inflation on the growth-enhancing role of financial development assuming a non-linearity relationship between finance and growth under different inflation regimes. The empirical study was carried out using the threshold regression model over the period of the first month of 1982 to the twelfth month of 2018. We found a strong evidence of a threshold effect (4.89%) which modifies the impact of financial deepening on growth in Tunisia. If the inflation rate falls below 4.89%, financial depth stimulates economic growth. However, this effect is weakened as inflation rate grows. Oppositely, credit growth of commercial banks is not efficient enough to contribute to economic growth. Thus, high
inflation disrupts the growth-enhancing role of finance in Tunisia. Practically, the Tunisian monetary authorities are recommended to keep an inflation rate under 4.89% to reach a sustainable growth through financial development. Keywords: threshold regression model; inflation; financial development; economic growth. DOI: 10.1504/IJMEF.2021.10040342
Herding behaviour in Turkish stock market sector indices: the effect of COVID-19 outbreak by Kıymet Yavuzaslan, Nasif Ozkan Abstract: Within the framework of isolation and social distance rules, the most important method of avoiding the COVID-19 virus, has taken place in the social life and the economic activities of people. The COVID-19 outbreak has driven uncertainty in all financial markets, and also recent studies have determined a direct relationship between the irrational decisions of investors and the pandemic. After the COVID-19 outbreak, principally, the herding behaviour has been observed in almost all the emerging stock markets. We analysed the sixteen Borsa Istanbul sector indices using the methodology of Chang et al. (2000). During the COVID-19 outbreak, we validated the existence of herding behaviour in the food, beverage, and banking sectors. Besides, we found evidence of herding behaviour in most of the sectors in upmarket conditions, while we confirmed only in the Food, Beverage sector in both the up and down market conditions. Keywords: COVID-19; behavioural economics; stock market; herding behaviour; sector indices; Turkey; BIST. DOI: 10.1504/IJMEF.2021.10040550
Analysis of currency volatility from a macroeconomic perspective: the case of selected emerging market economies (EMEs)
by Aadila Hoosain, Alta Joubert, Emmanuel Owusu-Sekyere Abstract: This paper explores the macroeconomic drivers of currency volatility in 15 selected emerging market economies (EMEs) using data from 2001Q1 to 2017Q3. We control for country heterogeneity and cross-sectional dependence of the error term using the least square dummy variable (LSDV) fixed effects and feasible generalised least squares (FGLS) by Parks (1967) and Kmenta (1986) in a sample wide estimation. Country specific estimations are also done using Swamys random coefficients (RC) Estimator. In the sample wide estimation, we find that currency volatility in the selected EMEs is
aggravated by persistence, government expenditure, financial deepening and very marginally interest rate differential. A favourable current account balance and economic growth alleviates currency volatility in these countries. However, there are country specific differences highlighting the need for policy differentiation in addressing currency volatility in individual EMEs Keywords: EMEs; emerging market economies; monetary policy; open
economy macroeconomics; historical volatility; dynamic panel data econometrics; cross sectional dependence of the error term. DOI: 10.1504/IJMEF.2021.10040890