Gagari Chakrabarti

Anatomy of Global Stock Market Crashes

This book evaluates the successes, failures, and factors that influence the competition for public bus transport services. Using Germany as a case study, the author explains the dichotomous system of a market with licenses for commercial services, where operators are granted exclusivity, and licenses for non-commercial services, where supplementary direct subsidies are tendered out by public transport authorities. The empirical analysis is based on primary data usually not publicly available, and supplemented by numerous expert interviews.

Volatility, Long Memory, and Chaos: A Discussion on some “Stylized Facts” in Financial Markets with a Focus on High Frequency Data

Starting from the “Tulip Mania’ in the seventeenth century, financial sector crises have come in waves and in many different guises. While some of these remained confined to the regional boundaries, some acquired global dimension with the ultimate devastating impact on the real economy. The fact that the global economy has collapsed many a time following a financial panic has instigated the researchers, particularly after the recent global financial melt down, to explore the dynamics of global financial markets: the old issue of ‘finance-growth nexus’ is resurrected once again. The traditional school of the literature, however, is bifurcated on the issue. While one school perceives finance to be a ‘side show’ of growth, others believe in the considerable control that financial markets exercise on the real sector. The true nature and direction of the causality, however, is yet to be exposed. More recently, a parallel school of thought has developed that concentrate on the endogenous factors that generate dynamics within the stock market independent of the real sector. This growing body of the literature conjectures the global financial markets to be mostly deterministic, and in some cases, chaotic in nature. The markets are characterized by nonperiodic cycles and trends where volatility and fluctuations generate endogenously. The global markets, thus, are supposed to be inherently instable, or at best, stable on knife edge. Cycles and crashes are manifestations of this inherent instability. There is no determinate equilibrium in the market and no external shocks would be required to gear financial crises at regular interval. The implications of these are tremendous. A chaotic financial market puts efficient market hypothesis on trial, renders traditional asset pricing models useless, and makes long-term forecasting less reliable. The most devastating implication of the fact that the financial markets implode from within is perhaps for the developing markets as it makes government intervention ineffective. Hence, an introspection of financial market dynamics following this rather offbeat line of thought could be a researcher’s delight. The results obtained might lead to a reframing of old ideas and beliefs regarding financial market dynamics, boom and bust cycle, and predictability of financial crashes.

Indian Stock Market Volatility in Recent Years: Transmission from Global and Regional Contagion and Traditional Domestic Sectors

This study investigates volatility in Indian stock markets. Specifically, it looks for the possible volatility transmission channel for Indian stock market from the Indian sectoral developments as well as developments in the global market. SENSEX is used as the Indian market index and its response to overseas market indices like Dow Jones, FTSE, BVSP, MerVal, JKSE; further the relationship between SENSEX and domestic sectoral indices have also been examined. As it has been found, the volatility in the developed market indices Granger causes SENSEX volatility, showing a strong existence of a global contagion. SENSEX volatility is also related to some extent to the volatility of Jakarta Stock index, hinting towards some kind of regional contagion. Moreover, as the impulse response function shows, a shock in Dow Jones, Jakarta stock index and BVSP has profound effect on the SENSEX, (Dow Jones having the most important one). As for sources from its domestic sectors, capital goods and consumer durables are the most prominent contributors to the volatility of the SENSEX.

Globalization, Crisis and Forex Exposure: Indian Evidence

Globalization and financial sector reforms in India have ushered in a sea change in the financial architecture of the economy. The same is manifested in her capital markets including the stock markets and her foreign exchange markets as well. With this backdrop, the present study has been initiated to capture the foreign exposure effect at firm and industry level around the two difference crisis period, i.e. Dot-Com crisis in 2001 and Sub-Prime crisis in 2008 with respect to India. Whether and how the nature and magnitude of such exposure depends on the movements and particularly on the crises in the economy; such exploration is important because, if the nature and magnitude of such exposure depends on the cycles of the economy; or it changes as the economy approaches a peak, plunges into a crisis and then recovers, and if the nature of such change differs from one cycle to another, additional risks may be imparted on the economy. Overall, the results of this study provide enough evidence that exchange rate fluctuations affects firm value in Indian context which is in line with theory. Moreover, the study concludes that exchange rate exposure on firms’ value depends on nature of the crisis.

Intelligence?… Emotions?… or, the Emotional Intelligence: Theories and Evidence in Global Context

This chapter portrays the conceptual development of Emotional Intelligence as a distinct branch of intelligence. The growing branch of relevant literature has gradually shifted its focus from pure cognitive abilities to concede the presence of non-cognitive skills allowing one to comprehend and control personal emotions; to recognize and appreciate that of others’ and to use such skills to make a system better functioning by fostering success of those who belong to it. The chapter reviews the attempts made to relate two apparently unrelated terms namely, Emotions and Intelligence to explain the abilities to lead an effective life. It reviews the basic tenets of the Bar-On model, the Mayer-Salovey model; Goleman’s Mixed model, and the Big-five and other trait-based models with their applications in global context.

Benefit to an Organization: Intrinsic Skills and (Or?) Psycho-social Factors

The present chapter delves deep to identify whether emotional intelligence competences of employees in certain areas across age, gender, income, education and occupation structure indeed translate into superior on-the-job performances in a country like India. An affirmative answer would emphasize the need for an organization to look for such skills in potential employees and the inevitability to nurture such skill in existing employees. The chapter proceeds further to explore whether hiring people on the basis of such non-cognitive skills would help an organization avoid the problem of moral hazards where hidden actions on part of the employees, who are otherwise skilled, might adversely affect the organization’s valuation of the transactions in which they would be involved.

Indicators of Emotional Intelligence: Determinants and Interconnections

Redefining intelligence has changed the way in which individual accomplishment could be explained and predicted. Since, the “emotional” brain rather than the “thinking” one is believed to respond more effectively to meet the needs of changing situations; it is Emotional Intelligence that explains the abilities to lead an effective life. It is thus crucial to explore whether people with cognitive skills and coming from different social and demographic strata excel in non-cognitive skills so as to help the organization, to which they belong, to attain certain specific goals. This chapter intervenes here with reference to India. The exploration on the basis of a primary survey includes a search for the presence, or otherwise of such skills followed by an analysis of factors determining those.

Global Foreign Exchange Market: A Crisis Analysis

The global financial market is often taken as an inherently fragile system that is prone to irrational exuberance, unfound pessimism and crises. Faced with such a system, researchers and analysts often seek to explore the roots of crises and the channels through which they reverberate from the center to periphery. While financial disasters are probable it would be nice if they are predictable. The investors, analysts and the policy-makers would sit comfortably if stress or crisis in one financial market could be predicted from those in other markets. This is particularly the area where the present study intervenes with a focus on the foreign exchange market. It considers three exchange rates defined between (i) two emerging nations (India and Singapore), (ii) an emerging and a developed nation (India and the US) and (iii) two developed nations (the US and the UK). In terms of stress indexes defined for each of these markets, it found no causality between stock market and foreign exchange market stresses for the developed-developed market pair. For the emerging markets, particularly for India, such channels of stress transmission remain and foreign exchange market crisis and stock market crisis (whether generated domestically or emanating from the developed, foreign market) may appear as “twin”. For Singapore, however, such a channel exists where stress is generated only in the other emerging market. Thus, the emerging markets that experience huge inflow of foreign capital in their stock markets might take stock market crises and foreign exchange market crises as twin. The policy implications, however, might differ. In some cases, it would be enough to regulate the domestic stock market, but in some other instances crises may be contagious coming from stock markets abroad.

Greens—The Obvious Choice Over the Grays?

This chapter delves into an individual decision-making problem that bears significant social implications. While tagging along less-carbon investment path through increased investment in “green” projects is socially desirable in the modern era, its implementation is not so easy. The policy-makers, however, would sit comfortably if the imperative choice of the new “green” financial products turns out to be, in fact, obvious. This study explores specifically this issue in the context of an emerging market through examining whether given a choice between green and non-green projects, greens become the optimal choice of a rational investor. As is revealed by the study, the green (either completely or partially) portfolios dominate the available alternative gray portfolios. The green portfolios turn out to be the global minimum variance portfolio, and they dominate the gray in terms of the own-risk as well as the market risk. Even the probabilities of surviving crises are higher, and hence, hazard ratios are lower for the green portfolios. Thus, green is preferred to gray and more green is better than less green. Hence, following less-carbon investment path is the most rational and obvious choice for the investors in the Indian market.

Profits Are Forever: A Green Momentum Strategy Perspective

This chapter attempts to examine the possibility of receiving consistently above-average returns for two “pure” (100 % green, 100 % gray) and three “hybrid” (25 % green, 50 % green, and 75 % green) portfolios. A popular tool of investment decision making has been momentum trading strategies. This chapter makes use of suitable momentum trading strategy to examine the investment-worthiness of the green, part green, and gray portfolios. The empirical analysis starts with an examination of long-term memory in the portfolio returns. Both graphical as well as statistical results suggest that only 100 % green and 100 % gray portfolios exhibit significant long-term memory. The study delves deeper and investigates the presence of any possible trading strategy in the portfolio returns. As the result suggests, only 100 % green and 100 % gray portfolio returns are characterized by a long run moving average-based trading strategy. Most importantly, the 100 % green portfolio leads to a higher return than the 100 % gray portfolio, reinforcing the investment-worthiness of green assets.