Ali F. Darrat

Intraday trading volume and return volatility of the DJIA stocks: A note

We examine the contemporaneous correlation as well as the lead-lag relation between trading volume and return volatility in all stocks comprising the Dow Jones Industrial Average (DJIA). We use 5-minute intraday data and measure return volatility by the EGARCH method. Contrary to the mixture of distribution hypothesis, the vast majority of the DJIA stock shows no contemporaneous correlation between volume and volatility. However, we find evidence of significant lead-lag relations between the two variables in a large number of the DJIA stocks in accordance with the sequential information arrival hypothesis.

On the Role of Futures Trading in Spot Market Fluctuations: Perpetrator of Volatility or Victim of Regret?

We examine the role of index futures trading in spot market volatility. We use the exponential generalized autoregressive conditional heteroskedasticity (EGARCH) approach to measure volatility, analyze causality and feedback relations between volatilities in the spot and futures markets, and test various hypotheses in the context of a multivariate model that incorporates other macrostate variables. Our empirical results suggest index futures trading may not be blamed for the observed volatility in the spot market. Rather, we find stronger and more consistent support for the alternative posture that volatility in the futures market is an outgrowth of a turbulent cash market. We use the regret (cognitive dissonance) theory to explain our results. The Southern Finance Association and the Southwestern Finance Association.

Permanent and Transitory Driving Forces in the Asian-Pacific Stock Markets

This paper uses weekly data from November 1987 through May 1999 to examine whether U.S. or the Japan stock market (or both) is the main driving force behind major movements in eleven emerging Asian-Pacific stock markets. We find a robust cointegrating relation linking each of the emerging market with the two matured markets of the U.S. and Japan. The results also show that the U.S., rather than Japan, is the main permanent force driving the equilibrium relations across all Asian-Pacific markets. In contrast, the effect of the Japanese market on the Asian-Pacific region is only transitory. Therefore, strategic asset portfolios in the Asian-Pacific region should include Japanese stocks to diversify any country specific risks. As to U.S. investors, the persistent influence of the U.S. market may limit long-run diversification gains from Asian-Pacific stocks. Copyright 2002 by the Eastern Finance Association.

Interdependence and Volatility Spillovers Under Market Liberalization: The Case of Istanbul Stock Exchange

This paper analyzes stock returns and volatility relations between the Istanbul Stock Exchange (ISE) and the global market as represented by stock markets in the US, the UK, Japan and Germany. Results from monthly data and multivariate cointegration tests suggest that the ISE became significantly integrated in the global market only in the period following market liberalization in late 1989. We also find evidence based on GARCH estimations that capital liberalization actually mitigated, rather than intensified, volatility in the ISE. Our results further suggest that the Asian crisis in mid-1997 and the consequent Russian economic meltdown in mid-1998 are partly responsible for the recent excessive volatility in the Turkish market. The results also identify the US and the UK markets as dominate sources of volatility spillovers for the ISE, even in the period following the Asian-Russian crises. Consequently, it appears that the two matured markets of the US and the UK shoulder significant responsibility for the stability and financial health of smaller emerging markets like the ISE.

Real Estate Returns, Money and Fiscal Deficits: Is the Real Estate Market Efficient?

This research examines the causal relationship between several financial variables and a portfolio of real estate returns using monthly data from January 1965 to December 1986. The empirical analysis is based on multivariate Granger-causality tests in conjunction with Akaikes final prediction error criterion. The results indicate that measures approximating monetary policy and market returns play an important role in causing changes in real estate returns. In particular, our findings suggest that base money and market returns have had significant lagged effects on current real estate returns.

Budget deficits, money growth and causality: Further OECD evidence

Abstract This paper investigates the causal linkage between budget deficits and money growth in seven major OECD countries using multivariate Granger-causality tests combined with Akaikes AIC criterion and Zellners iterative seemingly unrelated regressions. The accommodation hypothesis that deficits Granger-cause positive long-run changes in money growth is systematically rejected across all countries. The reverse hypothesis that money growth Granger-causes long-run changes in deficits is also rejected across countries. These results suggest that monetary and fiscal policies are set independently in each of the OECD countries.

Finance and Macroeconomic Performance. Some Evidence for Emerging Markets

This paper examines whether financial-sector development in several emerging markets affects their real economic activity. Results from cointegration and error correction models suggest that financial deepening (alternatively measured) exerts a robust longterm stimulating effect on real economic activity (both overall and sectoral) in all countries examined. However, short-term effects of financial deepening prove generally nonexistent, or tenuous at best. The results suggest that improving the structure and operation of the financial sector in emerging markets does stimulate real growth, but only if such improvement persists over a prolonged period of time.

Are budget deficits inflationary? A reconsideration of the evidence

This paper returns to the issue of whether high budget deficits have had any inflationary consequences in Greece. In a recent paper, Hondroyiannis and Papapetrou (1997) report results denying any direct impact of the deficit on inflation. It is shown here that their evidence lacks weight owing to several modelling and estimation problems. Upon rectifying these problems, the results consistently suggest that, besides money growth, budget deficits have also played a significant and direct role in the Greek inflationary process. Thus, efforts to curtail budget deficits in Greece as required by the EMU should also prove useful in mitigating inflationary pressures.

US Oil Consumption, Oil Prices, and the Macroeconomy

Since the oil price shock of 1973–74, researchers have waged an intense debate regarding the connection between the U.S. energy sector and national income. Studies examining the relationship between oil prices, oil consumption, and real output have produced remarkably mixed results. In particular, the two most widely cited investigations by Darby and Hamilton come to dramatically different conclusions concerning the effect of oil shocks on economic activity. To date, however, studies of this issue have been either correlation based and thus void of causality inferences, have used overly restrictive bivariate causality techniques, or covered periods that exclude major oil price disruptions. This paper analyzes a quarterly multivariate VAR model to investigate the existence and direction of causality between oil prices, oil consumption, real output, and several other key macroeconomic policy variables. Among the key findings is that oil price shocks are not a major cause of U.S. business cycles. Moreover, our findings also suggest that both oil prices and real output cause significant changes in oil consumption without feedback. These results support the contention that a systematic U.S. conservation policy would not significantly impair real economic activity.

Are the Arab Maghreb countries really integratable?: Some evidence from the theory of cointegrated systems

Abstract The main objective of this study is to assess the extent of economic and financial integration among the countries in the Arab Maghreb region. Empirical results consistently suggest that three of these countries (Algeria, Morocco, and Tunisia) do share a robust and meaningful relation binding together their macroeconomies, their financial markets, and their monetary policies, at least over the long-term horizon. Therefore, the failure, thus far of these countries to achieve a genuine regional integration is likely caused by socio-political factors rather than by economic or financial incompatibility. Of course, the presence of a potent long-run relation among the three countries should motivate further efforts towards the creation of an effective regional integration. The results suggest that such efforts should start with improving the structure and the operation of the Arab Maghreb Union which, despite its current feeble status, has apparently strengthened economic and financial ties among countries in the region.