Ah Boon Sim

The causal relationships between equity indices on world exchanges

The Engle and Granger cointegration analysis and Granger causality tests are applied to monthly time series of nine major stock market indices over the period January 1982 to February 1991 to examine for causal linkages. The empirical results indicate that there is adequate evidence to refute the notion of informationally efficient stock markets.

Share price volatility with the introduction of individual share futures on the Sydney Futures Exchange

Abstract This paper examines a recent innovation in financial derivative securities—individual share futures contracts traded on the Sydney Futures Exchange. We investigate changes in the volatility of the underlying shares in the cash market using an asymmetric exponential ARCH model. The overall evidence suggests that the introduction of futures trading has had very little impact on cash market volatility. Trade in the futures market has less of an effect on cash market volatility than cash market trading for most shares.

The Determinants of Intra-Industry Trade in Insurance Services

In light of the growing significance of trade in financial services, and the emphasis placed on trade in financial services during the Uruguay round of trade negotiations, this article is the first study of the determinants of intra-industry trade (IIT) in insurance services. The article analyzes and measures the magnitude of IIT in insurance services for the United States. The empirical results of the determinants of IIT indicate that foreign direct investment in insurance services (FDI) is a significant contributor to the volume of trade in insurance services. These empirical findings confirm the new theoretical trade models that, unlike the traditional trade theory that considered trade and foreign direct investment in insurance services as substitutes, trade and FDI complement each other and hence multinational insurance companies are contributing to an increase in the volume of trade in insurance services. Furthermore, this study shows that trade intensity between the United States and its trading partners leads to product differentiation in insurance services and hence an increase in consumer welfare. Copyright 2003 The Journal of Risk and Insurance.

Optimal hedge ratios and alternative hedging strategies in the presence of cointegrated time-varying risks

This paper utilizes the inter-temporal relationship between the FTSE-100 stock index and its futures price level between 1992 and 1999 to examine the characteristics of several minimum variance hedge ratios and the performances of several alternative hedging strategies for dynamic portfolio management in the presence of cointegrated time-varying risks. Earlier studies neglected the importance of cointegration between the two variables which resulted in biased estimates. These studies, in general, also assume that the hedging period is the same as the estimation time interval. This paper also looks at several key issues when the holding period is longer than the estimation period, such as the construction of optimal minimum variance hedge ratios, and the trade-off between transaction costs and risk reduction.

Dynamic Hedging Effectiveness in South Korean Index Futures and the Impact of the Asian Financial Crisis

This paper focuses on the impact of the 1997 Asian financial market crisis upon hedging effectiveness within the KOSPI 200 stock index and index futures markets. The paper utilizes the inter-temporal relationship between the two markets to examine the characteristics of several minimum variance hedge ratios. It also examines the performances of alternative hedging strategies for dynamic portfolio management in the presence of cointegrated time-varying risks. The results show a decline in the persistence of conditional volatility within market prices after the crisis. This decline leads to the relative performance of utilizing constant hedge ratios to increase, though not significantly so to guarantee a superior performance over more sophisticated time-varying hedge ratio strategies.

Intertemporal volatility and price interactions between Australian and Japanese spot and futures stock index markets

Previous studies have examined causality within and between different spot and futures markets with a motivation to discover market comovements, price leadership effects, and, more recently, volatility spillovers across markets. However, the empirical framework within which this is accomplished tends not to analyze explicitly foreign spillover effects upon a spot–futures relationship, which may significantly alter the equilibrium between these markets. This will then have a direct impact upon the estimation of dynamic risk adjustments that occur from the interaction between these markets. This article develops a quadvariate simultaneous‐equation EC‐ARCH model with an emphasis on volatility spillovers as a better alternative methodology to evaluate these relationships from a different perspective. This model is applied to examine the interaction between the Australian and Japanese spot and futures stock index markets, which allows for an Australian or Japanese futures trader to analyze the impact of foreign cash and futures markets, as well as the local cash market, on the local futures market in a single coherent framework. This type of analysis is not possible using previous paradigms, because they allow the trader only to examine the impact of local cash and foreign futures markets in separate settings.

The Privacy Bootstrap

Methods for privacy protection of microdata include grouping and publication of data perturbed with random noise. The authors suggest a variant of the latter in which the noise is generated by bootstrapping from the original empirical distribution. The published data distribution then essentially consists of a convolution of a distribution with itself and the distribution can be recovered, although the individual observations remain protected. The authors explore the trade-off between privacy protection based on bootstrapping and the efficiency of estimation using the published data. For reasonable loss measures, the trade-off is hyperbolic in character. Some encouraging simulation results are reported.

A comparative study of the finite-sample performance of some portmanteau tests for randomness of a time series

Testing for the randomness of a time series has been one of the most widely researched topics in time-series analysis. The present paper carries out a comparative study of the finite-sample performance of some well-known portmanteau tests in this area. Using Monte Carlo simulation experiments, we find that (i) the empirical sizes of some oft-used parametric portmanteau tests are severely undersized when the data generating process is skewed, (ii) the non-parametric portmanteau test possesses proper sizes only when the number of rank autocorrelations is chosen to be small relative to the sample size, (iii) the non-parametric portmanteau test is more powerful than the parametric portmanteau tests in the case of skewed distributions, and (iv) the choice of the number of sample autocorrelations (or rank autocorrelations) can significantly affect the size as well as the power of the tests considered.

Implicit deposit insurance and deposit guarantees: Characteristics of Australian bank risk premia

This paper examines the hypothesis that CD issue yields of Australian banks incorporate a premium that reflects bank risk. Our empirical analysis of Australian banks’ CD premiums suggests the data is consistent with this hypothesis and hence supports the view that CD holders do not perceive their deposits as being risk-free. Nor do we find any statistically significant difference between the premiums paid by private banks with implicit deposit insurance vis-a-vis those paid by government-owned banks with explicit government guarantees.

A generalized method of moments comparison of the cox-ingersoll-ross and heath-jarrow-morton models

Abstract In this paper, we compare two competing term structure models: the general equilibrium-based model of Cox, Ingersoll and Ross and the no-arbitrage-based model of Heath, Jarrow and Morton. We compare term structure fit using a set of US Treasury bills split in half around the structural break of October 1979, following the Federal Reserve Boards change in monetary policy. We use Hansens generalized method of moments for parameter estimation. Non-nested comparison tests of model fit are made using Davidson-MacKinnons J test.