Haslifah M. Hasim

Inference of financial networks using the normalised mutual information rate

In this paper, we study data from financial markets, using the normalised Mutual Information Rate. We show how to use it to infer the underlying network structure of interrelations in the foreign currency exchange rates and stock indices of 15 currency areas. We first present the mathematical method and discuss its computational aspects, and apply it to artificial data from chaotic dynamics and to correlated normal-variates data. We then apply the method to infer the structure of the financial system from the time-series of currency exchange rates and stock indices. In particular, we study and reveal the interrelations among the various foreign currency exchange rates and stock indices in two separate networks, of which we also study their structural properties. Our results show that both inferred networks are small-world networks, sharing similar properties and having differences in terms of assortativity. Importantly, our work shows that global economies tend to connect with other economies world-wide, rather than creating small groups of local economies. Finally, the consistent interrelations depicted among the 15 currency areas are further supported by a discussion from the viewpoint of economics.

Refining value-at-risk estimates using a Bayesian Markov-switching GJR-GARCH copula-EVT model

In this paper, we propose a model for forecasting Value-at-Risk (VaR) using a Bayesian Markov-switching GJR-GARCH(1,1) model with skewed Student’s-t innovation, copula functions and extreme value theory. A Bayesian Markov-switching GJR-GARCH(1,1) model that identifies non-constant volatility over time and allows the GARCH parameters to vary over time following a Markov process, is combined with copula functions and EVT to formulate the Bayesian Markov-switching GJR-GARCH(1,1) copula-EVT VaR model, which is then used to forecast the level of risk on financial asset returns. We further propose a new method for threshold selection in EVT analysis, which we term the hybrid method. Empirical and back-testing results show that the proposed VaR models capture VaR reasonably well in periods of calm and in periods of crisis.

Bilateral intra-industry trade flows and intellectual property rights protections: further evidence from the United Kingdom

ABSTRACT This paper investigates the relationship between the United Kingdoms (hereafter referred as UK) bilateral intra-industry trade (IIT) and foreign intellectual property rights (IPRs) protections. The empirical investigation is based on pooled UK data and benefits from the theoretical distinction between horizontal and vertical IIT. It also estimates a gravity equation for international trade using both fixed and random effects models. We then extend the analysis by employing the GMM system for dynamic panel models. The principal findings suggest that the UKs IIT is stimulated when the level of a trading partners IPRs and its imitative ability are considered jointly. However, when IPRs and imitation abilities are considered separately, their disparate effects are not an important factor in determining UK IIT flows.

PENSION PAY-OUT OPTIONS FOR DEFINED CONTRIBUTORY SCHEME IN NIGERIA: PROGRAMMED WITHDRAWAL OR LIFE ANNUITY?

© 2015 AIBE. In this study, we evaluate the concept and elements of contributory pension scheme in Nigeria, both at the accumulation phase and the pay-out phase under the new Pension Reform Act 2014 and the repealed Pension Reform Act 2004. This study further examines the two basic forms of retirement pay-out options available to employees at retirement, that is, programmed withdrawal and life annuity. Two case studies of a medical service employee and a teaching service employee working for Lagos State Government were used as illustrative examples. The concept of income replacement ratio is then used under certain calculation assumptions to compare both cases. In our analysis, we consider withdrawal of 25% and 50% from the balance of the retiree’s Retirement Savings Account (RSA) as a lump sum payment at retirement. Despite the fact that programmed withdrawal is the most sought-after and common pay-out preference of employees at retirement in Nigeria, our analysis concluded that based on the comparison of the income replacement ratio, the life annuity is a better pay-out option than the programmed withdrawal. Our final result shows that the replacement ratio is highest for a teaching service employee who received a 25% lump sum withdrawal under the Pension Reform Act 2014. However, even the best case analysed in this study still did not meet the two-thirds income replacement ratio recommended by many researchers. The result of this study provides a better understanding for Nigerian retiree to choose between a programmed withdrawal and life annuity payment.