Ijaz Ur Rehman

Exchange rate risk and the bilateral trade between Malaysia and Singapore

Purpose - This paper aims to examine the influence of exchange rate risk on the bilateral trade of two closely connected East Asian open economies – Malaysia and Singapore – at industry level. Design/methodology/approach - This study estimates import and export demand models considering 65 import and 65 export industries of Malaysia, with Singapore using monthly data over the period 2000-2014. Generalized Auto Regressive Conditional Heteroskedasticity (GARCH) model is used to measure the exchange rate risk, and autoregressive distributed lag (ARDL) approach to co-integration is used to examine the study empirical models. Findings - The findings suggest that exchange risk has an impact on a moderate number of industries in the short run; however, this influence endures in very few industries in the long run. It is interesting to note that exchange rate volatility expedites import demand for the large Malaysian import industries like gas and plastic. Originality/value - No prior study has explored the topic at industry level focusing on the bilateral trade flows between Malaysia and Singapore. This research serves important implications while thinking about exchange rate risk and trade linkage in a case of open economies trade pairs that are highly integrated in presence of a variety of bilateral trade agreements and economic groupings.

Macroeconomic determinants of stock market capitalization in an emerging market: fresh evidence from cointegration with unknown structural breaks

This article explores the macroeconomic determinants of stock market development in an emerging market (Pakistan) over the period of 1974–2010. We have applied Zivot–Andrews unit root test for integrating properties of the variables and the autoregressive distributed lag bounds testing for cointegration. The direction of causality between the variables is investigated by applying the vector error-correction model Granger causality approach. Our results revealed that variables are cointegrated for long run relationship. Economic growth, inflation, financial development and investment increase stock market development, but trade openness decreases it. The causality analysis confirms that stock market development is a Granger cause of economic growth, inflation, financial development, investment and trade openness. This article indicates the importance of trade openness while formulating a comprehensive financial policy.

Is the relationship between macroeconomy and stock market liquidity mutually reinforcing? Evidence from an emerging market

This study investigates whether macroeconomic variables and stock market liquidity have any impact on each other in an emerging market. The Granger causality test and innovative accounting approach (IAA) are used to test the causality among the variables of interest over the period of 2000 M1-2014 M12. Our results suggest that in the short-run, monetary base, interest rate, inflation and foreign equity net inflow have a lagged impact on stock market liquidity. The causality analyses suggest that only industrial production and foreign equity net inflow cause stock market liquidity. The IAA approach suggests that shocks to inflation and foreign equity net inflow increase stock market illiquidity while positive shocks to industrial production decrease stock market illiquidity. Our results suggest weak evidence of feedback from stock market liquidity to macroeconomic variables.

Stocks as Hedge against Inflation in Pakistan: Evidence from ARDL Approach

This article implements autoregressive distributed lag (ARDL) bounds testing approach to cointegration to explore whether or not stocks are good hedge against inflation in case of a transition economy like Pakistan, using annual data for the period 1971–2008. Ng–Perron (2001) unit root test is applied to determine the stationarity of the series. The results suggest that stocks act as good hedge against inflation both in the long and short runs. The findings should help formulate appropriate policy to encourage investment in financial markets and thereby promote economic growth.