The two relevant criteria for evaluating the performance of the Indian economy in regional terms, in respect of FDI flows, according to our understanding are efficiency and equity. Since FDI is primarily a relocation of international production it is based on the principle of optimal resource allocation. The notion of efficiency, in this context, refers to the tendency of FDI to flow to those regions or States which have efficient production. The other side of the coin is that an efficient State deserves to get a greater share of FDI. This spells out the notion of equity. The paper uses set of new indices, including index of rank dominance, which shows that the most dominant centre is Mumbai. The paper also uses a 2-Stage Least Square (2SLS) estimation procedure, with two panel regression fixed effects models. There is a very high elasticity of FDI flows w.r.t. SDP growth. Also the results show that there is an extremely high negative correlation (-0.996) between equity and efficiency. The states that are more efficient receive less of FDI flows. This points towards non-economic forces in operation that influence FDI flows and regional development.
Day: June 26, 2019
The Effect of Mergers and Acquisitions on Shareholder Wealth: The Case of European Banks
In this paper we investigate the effect of announcements of mergers and acquisitions on bank shareholder wealth. Despite the major impact of the phenomenon of mergers and acquisitions on the future of the European banking industry, there are currently few studies that investigated this area. This is largely due to the fact that it is a relatively recent phenomenon since it began to grow in 1997. Based on a sample of 97 European banks over the period 1997-2008, our study showed that the European banking mergers and acquisitions create value but all of this value created by the purchasers bid is received by the shareholders of the target. These appear to be the main beneficiaries of mergers and acquisition. However, shareholders of acquiring banks, meanwhile, are not harmed by the operations of mergers and acquisitions initiated by their leaders.
Rise and Fall of Interest Rate Futures in Indian Derivative Market
Interest rate derivatives are the most traded and widely accepted derivative instrument in the international market. But this product is not popular in Indian derivative market. In 1999, the Over the Counter (OTC) interest rate derivative products were introduced and successful in terms of volumes. The Indian financial market introduced exchange traded interest rate derivatives in the year 2003, 2009 and 2014. While the product failed twice, in the third time (in 2014) the initial volumes are sharply declining in three exchanges viz. MCX-SX, NSE and BSE. In this backdrop, this study attempts to analyse the past, present and future of interest rate futures in Indian derivative market using the volumes, values and open interest of Interest rate derivatives for three exchanges.
Prior Return Effect in Indian Stock Market: An Intra-day Analysis
In a first of this kind, this paper examines the issue of prior return effect in Indian stock market in intra-day analysis using high frequency data. We document that in Indian stock market, security returns exhibit a reversal in their direction within few minutes of extreme price rises as well as price falls. However the speed with which the correction takes place is slightly different for good news events and bad news events. Indian investors tend to be optimistic as they immediately bring stock prices up following unjustified price falls but take time to bring stock prices down following unjustified price rises. These findings lend a further support to short-term overreaction literature. More importantly, these findings serve as a proof of predictability of the direction of future stock prices and consequent returns on an intra-day basis. It forwards important investment implications for traders, fund managers, and investors at large.
Credit Risk, Capital Adequacy and Banks Performance: An Empirical Evidence from Pakistan
Credit risk is one of the major risks in banking operations now-a-days. For sustainable financial performance, credit risk management is of crucial importance. Non-performing loans are the major element of credit risk that negatively affects the banking performance. To cater such risk, banks have to maintain certain percentage of capital as cushion with central bank as per BASEL requirements. Efficient credit risk management contributes positively towards banking profitability. This study aims to investigate, how credit risk and capital adequacy affects the performance of commercial banks in Pakistan. This study identifies the exposure of Pakistani commercial banks towards credit risk and impact of credit risk management practices for 6 years. The findings of this study help the risk managers to ensure prudent credit risk management practices that will help in reducing non-performing loans and improving banking performance.
Effects of Firm Specific and Macro-Economic Factors on Trade Credit Supply: The Case of a Developing Country
This study answers the call of understanding trade credit determinants and consequences in different cultures and economic setups in order to be able to devise policies. Trade credit is the separation between the delivery of goods and their payments. It is affected by two types of factors including firm specific characteristics and macroeconomic conditions. This study investigates the following firm specific variables such as firm size, liquidity, product quality, price discrimination and macro-economic conditions viz GDP. Data have been collected for trade credit supply determinants of non-financial firms listed in Karachi Stock Exchange, Pakistan. The number counts for 156 firms in 13 sectors with 11 years data from 2001-2011. The results show that all the variables are significantly related to trade credit supply as hypothesized.
Measuring Access of Microfinance on Poverty in India: Towards a Comprehensive Index
The outreach of micro-finance programme is considered to be a means enhance the economic well-being among the member means to enhance households through poverty alleviation. A wide cross-country variation in the outreach of micro-finance programme to the poor households is observed in the world. Despite the significant growth of micro-finance institutions and its active borrowers, the penetration of micro-finance lending services to the poor households in India is observed to be limited. In addition, there is a wide inter-state disparity in the achievement of micro-finance outreach in India especially among the poor households. A composite index has been constructed using the penetration, availability and usage indicators of micro-finance outreach to examine the interstate variations in the level of its achievement. Subsequently, attempt has been made to analyse the role of micro-finance in alleviating poverty across the states of India. The result shows that out of 27 states and Union Territories, only in seven states (Kerala, Andhra Pradesh, Tamil Nadu, Goa, Himachal Pradesh, Tripura, and Karnataka) outreach of micro-finance programme has made a significant impact on the reduction of poverty.
Optimal Asset Allocation of Assets in an Open Pension Plan
Given the generally long term nature of pension plans, the behavior of the market plays a crucial role in making a pension plan able to meet its obligations. Regardless of the market performance, the structure of the benefits remains the same, unless they are negotiated to be at a different level. In this paper, we studied primarily the impact of market performance on a pension plans ability to meet its obligations. We studied the period from 1974 to 2010 and included asset allocation strategies that varied from allocating 25% to 100% weight assigned to equity portfolios. The goals were to determine which type of asset allocation system is the most efficient across all time horizons. Our results show that it is not necessary to have an overly aggressive posture to equities. Indeed, as assets become more exposed to equities, the efficiency of a portfolio (as measured by Sharpe ratio) declines. We found that an exposure to equity in the range of 35%-50% is sufficient to meet most pension obligations, provided that the plans are fully funded at the outset. We acknowledge and thank the support of all members of the research committee of SOA for their valuable comments.
A Deterministic Description of Irrational and Semi-Rational Bubbles in Asset Markets
This present work provides a deterministic description irrational and semi-rational bubbles based on the stylized description forwarded by Hyman Minsky (1972), Day and Huang (1990) respectively. The paper emphasizes on two areas: First, it proposes a mathematical representation of an irrational bubble using piece-wise linear maps in a discrete time frame. Second, it studies the chaotic signals generated by them to explain the instability in asset price bubbles and explains the factors which impact their longevity.
Examining Contemporaneous Relationship between Return of Nifty Index and India VIX
The study examines the contemporaneous relationship between Nifty returns and India VIX returns. Literature documents that the relationship between them is negative and asymmetric. Building on this, the study considers the linear and quadratic effect of stock index return (CNX Nifty) and examines the changes in implied volatility index (India VIX). The study finds both linear and quadratic CNX Nifty index returns are significant for changes in the level of India VIX. Findings suggest that India VIX provides insurance both for downside market movement and size of the downside movement.
Impact of Weather on Return and Volatility: Evidence from Indian Stock Market
This study examines the impact of Weather factors on return and volatility of the Indian stock market. The study uses the daily data of top four metros and tests its impact on the return and volatility of S&P CNX Nifty index from January 2008 to December 2013. This study applies GARCH (1, 1) model and find that the stock returns are influenced by temperature in Chennai and the stock return volatility influenced by the temperature in Mumbai, Delhi and Kolkata.
Price Discovery and Market Efficiency of Commodities Futures Market in India- A Cointegration and Causality Analysis
The paper studies the Indian commodity futures market in order to determine the price discovery, long run market efficiency and short run dynamics in futures market using by time series analysis tools. To test the market efficiency and long run equilibrium, tools like Engle and Granger co-integration test (1987) and Johansen co-integration test (1988) have been applied. The Granger Causality (1969) test is used test the market efficiency to infer cause and affect relationship between spot and futures market in India. To examine efficiency of commodity futures and spot market the MCXs1 four spot and futures commodit
Robust Benchmarking of Indian Mutual Funds-A Partial Frontier Approach
Performance analysis of mutual funds is usually made on the basis of return-risk framework. Traditionally, excess return (over risk-free rate) to risk ratios were used for the purpose mutual fund evaluation. Subsequently, the application of non-parametric mathematical programming techniques in the context of performance evaluation facilitated multi-criteria decision making. However,the estimates of performance on the basis of conventional programming techniques like DEA and FDH are affected by the presence of outliers in the sample observations. The present, accordingly uses more robust benchmarking techniques for evaluating the performance od sectoral mutual fund schemes based on observations for the second half of 2010. The USP of the present study is that it uses two partial frontier techniques (Order-m and Order- a) which are less susceptible to the problem of extreme data.
Mobile Money Landscape in the 12 SADC Countries using FinScope Survey Data
There is no doubt that mobile money is bringing the under-served and the excluded population into the main stream financial services corridors. Based on the FinScope surveys, mobile money is becoming one of the enablers of financial inclusion. In an increasing number of developing countries, a number of poor people are using basic mobile phones to transfer money, paying for goods and accessing some basic financial services. According to the World Bank, mobile financial services are amongst the most promising mobile applications in the developing world. Although FinScope results show that mobile money usage is relatively low (23%) in the SADC region, the trend of usage is coming up fast. FinScope results show that close to 7 in 10 mobile money users are using it as a remittances/money transfer vehicle while 54% for buying airtime. It is encouraging that about 7 million adults (24% of mobile money) store value or save money in their mobile money accounts. Some barriers to mobile money relate to: affordability, perceived cost of mobile money, lack of understanding of mobile money/lack of awareness and no access to cell phones. Besides these barriers, mobile money is becoming a game changer for the landscape of financial inclusion in the SADC region.
Monthly Patterns in Egyptian Stock Market
In this paper, monthly effect in Egyptian stock market is investigated for the period January 2007 to July 2015. After examining the random walk hypothesis of the return series, a Seasonal Autoregressive Moving Average (SARMA) model is specified to test the monthly effect in Egyptian Stock market. The results of the study imply that the banking sector of stock market is informationally efficient and does not confirm to the existence of seasonality in stock returns.
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