Arun Kumar Gopalaswamy

The stability of long‐run relationships

Purpose – The purpose of this paper is to investigate the stability of the long‐run relationships between emerging (India, China, South Korea, and Taiwan) and developed stock markets (USA and Japan). The study aims at adding to the literature on market integration by investigating the hypothesis that the Asian emerging stock markets are increasingly converging with the US stock market over time.Design/methodology/approach – The authors use time varying cointegration tests (rolling and recursive cointegration) which allow for time variation in the underlying data generating process (possible structural breaks in the long‐run relationships). Ten year index data from mid 1998 to 2008 of the respective stock markets have been used for this study.Findings – Empirical findings support the presence of one long‐run relationship (cointegration vector) between emerging and developed stock markets. Both domestic and external forces affect stock market behavior, leading to long‐run equilibrium but the individual Asia...

Evidence on changes in time varying volatility around bonus and rights issue announcements

The short term and long term stock price volatility changes around bonus and rights issue announcements have been examined using historical volatility estimation and time varying volatility approach. The results show that the historical volatility has increased after bonus and rights issue announcements. Volatility persistence and unconditional volatility have also increased after the bonus and rights issue announcements. The results support the finding of Medeiros and Matsumoto (2006) but are contrary to the results of Li and Engle (1998), Connoly and Stivers (2005), and Boyd et al. (2005), who report decrease in volatility following the event announcements. This evidence, extendable to any other type of issue announcement, is consistent with theories stating that volatility increases after the seasoned capital issue announcements.

Dynamic linkages between foreign direct investment and domestic investment: evidence from emerging market economies

This paper examines the long-run relationship between FDI inflows, FDI outflows and gross fixed capital formation, in a dynamic panel of 22 Asian, Latin American and other emerging market economies. Employing panel cointegration and causality tests, we find a mixed picture of these relationships across the three sub-samples. It is observed that a positive and significant long-run relationship exists between FDI inflows and fixed capital formation for Asian EMEs, suggesting a crowd-in effect. This finding is consistent with the complementary hypothesis of neoclassical macroeconomic growth model in which it is often thought that FDI inflows complement the domestic investment. The results for the relationship between FDI outflows and fixed capital formation indicate a significant negative long-run relationship for Asian and other EMEs. In addition, the long-run causality is observed to be bidirectional for both the samples. These results confirm the general, accepted view that FDI outflows reduce domestic investment.

Dynamic interdependence between US and Asian markets: an empirical study

Purpose – The purpose of this paper is to examine the short-term stock market interactions between US and six major Asian markets – China, India, Hong Kong, Singapore, South Korea and Taiwan. These six economies along with Japan and Australia have the largest stock exchanges in the Asia-Pacific region. The importance of the US market to the Asian economies is the prime motivation for a quantitative assessment of its role in this region. The objective of this study is to measure the dynamic stock market interdependence of US and Asian newly industrialized economies (NIEs) (Hong Kong, Singapore, South Korea and Taiwan) and emerging market economies (EMEs) (China and India) post Asian crisis of 1997 and also to capture the market interactions during the sub-prime crisis. Design/methodology/approach – The study has employed Granger causality tests and generalized forecast error variance decomposition (FEVD) analysis to analyze the fluctuations in and the extent of short-term interdependence between the US and Asian economies. VAR model was estimated to run the simulations for FEVD analysis. Findings – The empirical results from FEVD analysis revealed the dominance of US stock market on Asian markets; the USA being a large economy of the world, an important trading partner and major supplier of capital to Asian region. Stock markets of Asia are not immune to the shocks originating in the USA although the effects of shocks vary considerably across markets. Further, an important implication is that major crisis events can influence the relationship among stock markets. Originality/value – This is one of the first papers in the Asian context examining the interdependence with the US markets. Hence, even though most of the Asian economies went through liberalization, the macroeconomic and financial circumstances were very different before, after and during the process. This motivated the examination of the interactions between US and other Asian markets.

Dynamic risk‐return relation with human capital: a study on Indian markets

Purpose – The purpose of this paper is to test a discrete time asset pricing model where a non‐marketable asset (human capital), along with other factors predicting stock returns, explain risk return relationship. The paper will add to the literature on risk return relationship with human capital by investigating the hypothesis that human capital is a significant factor affecting stock prices.Design/methodology/approach – The dynamic inter‐linkages of factors representing financial and human components of wealth in predicting stock returns is tested in the Indian market for the period of 1996:04 to 2005:06. The procedures employed include Granger causality tests, impulse response functions and seemingly unrelated regression estimates.Findings – Empirical findings validate the model that including human capital as a proxy for aggregate wealth in the economy can better predict stock prices than the standard empirical capital asset pricing model. There is a Granger cause relationship between security prices ...

Trade Size Preference of Informed Traders in Indian Equity Markets

ABSTRACT This study utilized high frequency transactions data to analyze the trade size preference of informed traders in Indian equity markets. It is observed that informed traders at an aggregate level adopt stealth trading strategy, wherein they prefer medium sized trades over large sized trades in order to camouflage their private information. However, the stealth trading behavior varies across stocks, wherein informed traders prefer more large sized trades on firms that are part of an index compared to non-index firms. Trading behavior also varies across other market conditions. It has been noted that informed traders prefer large sized trades during periods of high market thickness, negative returns, and low volatility. This study also provides a rationale for such varied behavior of informed traders.

Dominance of Chinese Market: An Empirical Study

In the 1950s, Japan held a prominent position as a low-cost manufacturer and gained abnormal profits through international sales. In a span of three decades, Japan became one of the world’s pioneers of “quality” in products and services. However, in the last decade or two, China has gained a prominent position and has replaced Japan – in terms of low manufacturing cost – and has improvised its position from a low-cost provider to the pioneer.

Financing technology startups: an entrepreneur's dilemma

Title – Financing technology startups: an entrepreneurs dilemma.Subject area – Entrepreneurship, finance, technology and innovation, general management.Study level/applicability – This case is suitable for students in finance, entrepreneurship and general management. The case seeks to understand the challenges of funding in technology startups and how they vary from product to service areas.Case overview – Availability of capital, short term and long term, is a major constraint faced by entrepreneurs. In India, in the technology sector, services companies have been able to innovate and grow whereas product‐based companies that survived the challenges of funding have been scarce. Aluru Karthik Prasanth is presented in the case as a young entrepreneur with passion and drive to pursue the commercialization of an idea he developed during his undergraduate studies in engineering. Leaving behind the beaten paths of MTech and employment, he decides to pursue MS entrepreneurship at IIT Madras. As he starts with ...

Long run post issue performance of fixed price and book built IPOs: an empirical study on Indian markets

Purpose: The purpose of this paper is to investigate empirically the difference in long run post issue performance of initial public offerings (IPOs) that tapped the Indian primary market through a fixed price offer and book building offer; also to assess the persistence of underperformance between these two routes of offering. Design/methodology/approach: The after market performance of the IPOs is empirically assessed based on their market prices and also taking into consideration the other factors associated with the after market performance such as the period of issue (boom/slump), sector in which the industry is operating, etc. Findings: The results suggest that there is no difference in the direction of performance of the issues post listing in the short run, however in the long run the issues that tapped the market through the book building route seemed to perform far better than the ones that raised money through a fixed price offer. The results also suggested that the average return irrespective of the route of issue remains the same and this is because of the high initial return of issues that tapped the market with fixed price offers. Originality/value: The paper provides useful information about the IPO markets of India and abroad, related literature and theories or hypotheses concerning methods of issue.