Chien-Chung Nieh

DYNAMIC RELATIONSHIP BETWEEN STOCK PRICES AND EXCHANGE RATES FOR G-7 COUNTRIES

Abstract There are two major findings from our time-series estimations. First, we find that there is no long-run significant relationship between stock prices and exchange rates in the G-7 countries. This result interfaces with Bahmani-Oskooee and Sohrabian’s (1992) finding, but contrasts with the studies that suggest there be a significant relationship between these two financial variables. Our second finding is that the short-run significant relationship has only been found for one day in certain G-7 countries. For instance, currency depreciation often drags down stock returns in the German financial market, but it stimulates the Canadian and UK markets on the following day. However, an increase in stock price often causes currency depreciation the next day in Italy and Japan. In addition, we also find that the record of stock price and the value of the dollar cannot be depended on when predicting the future in the US, either in the short-run or long-run.

An empirical note on testing hysteresis in unemployment for ten European countries: panel SURADF approach

The hysteresis hypothesis in unemployment for ten European countries are tested using newly developed Panel SURADF tests of Breuer et al. (2001) for the 1961–1999 period. While the other Panel-based unit root tests are joint tests of a unit root for all members of the panel and are incapable of determining the mix of I(0) and I(1) series in the panel setting, the Panel SURADF tests a separate unit-root null hypothesis for each individual panel member and, therefore identifies how many and which series in the panel are stationary processes. The hysteresis hypothesis is confirmed for all the European countries except Belgium and the Netherlands when Breuer et al.s Panel SURADF tests are conducted.

The effect of the Asian financial crisis on the relationships among open macroeconomic factors for Asian countries

This study investigates the effect of Asian financial crisis on the relationships among exchange rate volatility, export, import, and productivity for Taiwan, Korea, Malaysia, and Indonesia. Cointegration tests show no change for the long-run equilibrium relationship among these variables throughout the crisis. Granger causality finds that some exogeneity orderings alter from pre- to post-crisis periods for the countries considered. Impulse response functions (IRs) for the pre-crisis period demonstrate the primary importance of productivity, then second importance of export. For the post-crisis period, oscillatory paths around zero of the IRs imply an ambiguous finding for the direction of effect and relative exogeneity among variables studied. The variance decompositions in export for Taiwan, Korea and Malaysia, and in productivity for Malaysia and Indonesia did not change from the pre-crisis to the post-crisis era. However, most of the rest of the forecast error variances in variables were decomposed into their own innovation more proportional in the pre-crisis period than in the post-crisis period.

International Transmission of Stock Price Movements among Taiwan and Its Trading Partners: Hong Kong, Japan and the United States

This study uses a cointegration analysis and vector autoregressive models to investigate the transmission of stock price movements among Taiwan and its major trading partners, Hong Kong, Japan and the United States. The results of Johansen cointegration test indicate that four stock markets considered are cointegrated with one cointegrating vector, which violates the semi-strong form of the market efficiency hypothesis. The results from Granger-causality test based on error-correction models suggest the relative leading roles of the U.S. and Japanese markets in driving fluctuations in the other two markets. In order to capture the impacts of the economic shocks, two dummy variables are incorporated into the models taking into account the U.S. stock crash of October 1997 (D97) and the previous spreading Asian finance crises (Dac). The results indicate that D97 significantly affects the U.S. stock market, but shows no significant impact on the others. The Dac, however, shows significant impacts on both the Japanese and the U.S. markets. The robustness of the relative leading roles of the U.S. and Japanese markets are further supported by the variance decompositions and impulsive response functions indicators. The Taiwan and Hong Kong markets are somewhat affected more by regional countries such as Japan than by the U.S.

Rational bubbles in the US stock market? Further evidence from a nonparametric cointegration test

In this study, we revisit the issue as to the presence of rational bubbles in the US stock market during the 1871 to 2002 period using both the Johansen cointegration and the Bierens 1997 nonparametric cointegration tests. The results from the conventional Johansen cointegration test fully support the existence of rational bubbles, whereas those from the Bierens nonparametric cointegration test attest to the absence of rational bubbles. On account of the superiority of the nonparametric method to detect cointegration when the error–correction mechanism is nonlinear, we firmly believe that the results from the nonparametric cointegration test are considerably more reliable than those derived from the conventional Johansen approach.

An Overview of Asian Equity Markets

This study overviews the development of 11 Asian equity markets, namely, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand. Prior to the onset of the global financial crisis, the Asian stock exchanges were generally bullish, underpinned particularly by Chinas robust economic performance. Innovations in financial products and services have been growing in importance, as stock exchanges in these countries have been making a concerted effort to introduce new features and best practices, with the objectives of raising market efficiency, enhancing service quality, and generally bringing operations up to par with international standards. But the potential to realize or support market efficiency can only be possible within an adequate legal framework, a sound market infrastructure, and appropriate corporate governance mechanisms. Thus, many challenges are still to be overcome in the region.

Analysis of long-run benefits from international equity diversification between Taiwan and its major European trading partners: an empirical note

This paper employs four cointegration test approaches, PO, HI, JJ and KSS, to test for pairwise long-run equilibrium relationships between Taiwans stock price index and each of the stock price indexes of four European markets – French, German, Dutch, and British stock markets. The results from these four tests are robust and clearly consistent in suggesting that the Taiwan stock market is not pairwise cointegrated with the four European stock markets. This provides strong evidence that there exist long-run benefits for Taiwan investors diversifying in the equity markets of Taiwans major European trading partners, France, Germany, Holland, and the UK, over the sample period considered from 6 January 1998 to 30 May 2002. These findings could be valuable to Taiwan individual investors and financial institutions holding long-run investment portfolios in the equity markets of France, Germany, Holland, and the UK.

Who has more influence on Asian stock markets around the subprime mortgage crisis – the US or China?

This article employed the Momentum Threshold Autoregressive (M-TAR) model to investigate the changes in the asymmetric co-integration relationship between the US and Chinas stock markets and Asian stock markets of Taiwan, Hong Kong, Singapore, Japan, Korea and India around the subprime mortgage crisis. The main empirical findings demonstrated that with the application of traditional symmetric co-integration tests, the subprime mortgage crisis did not reinforce the co-movement trends between the US and Chinas markets and Asian markets. However, with the application of the M-TAR model for the threshold co-integration test, there was significant increase in these asymmetric co-integration relationships between them during the period of the subprime mortgage crisis, and our empirical results show evidence that the linkage between the US and Chinas stock markets is low, and investors can somewhat diversify risks by investing in the United States and China simultaneously.

Regime Shifts and the Term Structure of Interest Rates

Since the seminal paper of Duffie and Kan (1996), most empirical research on the term structure of interest rates has focused on a class of linear models, generally referred to as “affine term structure models.” Since these models produce such a closed-form solution for the entire yield curve, they become very tractable in empirical applications. Nonlinearity can be introduced into dynamic models of the term structure of interest rates either by generalizing the affine specification to a quadratic form or by including a Poisson jump component as an additional state variable. In our paper, we survey some recent studies of dynamic models of the term structure of interest rates that incorporate Markov regimes shifts. We not only summarize an early literature of regime-switching models that mainly focus on the short-term interest rate, but also the recent studies considering regime-switching models in discrete-time and continuous-time, respectively.

Nonlinear short-run adjustments in US stock market returns

Using the considerably powerful nonparametric cointegration tests proposed by Bierens (1997, 2004), we do not find any evidence indicative of the existence of rational bubbles in the US stock market during the long period of 1871 to 2002. In addition, with the application of a logistic smooth transition error-correction model designed to detect the nonlinear short-run adjustments to the long-run equilibrium, we also obtain substantial empirical evidence in favour of the so-called noise trader models where arbitrageurs are reluctant to immediately engage in trading when stock returns deviate insufficiently from their fundamental value.