Jayasinghe Wickramanayake

Competition and structure of South Asian banking: a revenue behaviour approach

This paper examines the nature of competition and structure in South Asian banking markets. It also assesses whether traditional interest-based product market segments are more competitive than those that also include fee- and commission-based products. The reduced form Panzar–Rosse specification tests show that bank revenues appear to be earned under conditions of monopolistic competition during the period 1995 to 2003. In Bangladesh and Pakistan competition is greater in the traditional interest-based product markets while Indian and Sri Lankan domestic commercial banks seem to face more competitive pressure in the fee-based product market from other financial intermediaries.

Financial integration in selected South Asian countries

Purpose – The purpose of this paper is to examine financial market integration in major South Asian financial markets: Bangladesh, India, Pakistan and Sri Lanka. Also to identify the required policy interactions and structural changes vital for broader economic integration.Design/methodology/approach – This research opted for an empirical study employing co‐integration and causality techniques using a sample of stock and bond market data for major South Asian countries.Findings – Empirical results show that both stock and bond returns are co‐integrated, indicating common stochastic trends. Stock market integration appears to be much stronger compared to the less developed and data deficient bond markets.Research limitations/implications – The study relies on widely cited empirical methodology. However, adopting alternative specifications and also allowing for time variant factors while examining inter‐linkages between stock and bond markets seem to be appropriate for robustness of results.Practical implic...

Low‐Frequency Volatility of Yen Interest Rate Swap Market in Relation to Macroeconomic Risk

Using ‘low-frequency’ volatility extracted from aggregate volatility shocks in interest rate swap (hereafter, IRS) market, this paper investigates whether Japanese yen IRS volatility can be explained by macroeconomic risks. The analysis suggests that this low-frequency yen IRS volatility has strong and positive association with most of the macroeconomic risk proxies (e.g., volatility of consumer price index, industrial production volatility, foreign exchange volatility, slope of the term structure and money supply) with the exception of the unemployment rate, which is negatively related to IRS volatility. This finding is fairly consistent with the argument that the greater the macroeconomic risk the greater is the use of derivative instruments to hedge or speculate. The relationship between the macroeconomic risks and IRS volatility varies slightly across the different swap maturities but is robust to alternative volatility specifications. This linkage between swap market and macroeconomy has practical implications since market makers and hedgers use the swap rate as benchmark for pricing long-term interest rates, corporate bonds and various other securities.

Australian Superannuation (Pension) Fund Product Ratings and Performance: A Guide for Fund Managers

This paper investigates the ability of Morningstar superannuation fund ratings to predict future performance in the context of the Australian superannuation fund industry. In this context, we make provisions for fund size and fund age. We draw three broad conclusions. First, fund ratings can assist in predicting funds that are likely to significantly underperform in subsequent periods. Second, the ratings are mostly unable to distinguish between highly and moderately performing funds. Third, the likelihood of a fund being highly rated is negatively related to the size of assets under management and positively related to its age. Accordingly, the paper should be of benefit not only to fund managers seeking to identify underperforming funds, but also to fund advisers, retail investors, and trustee boards choosing SF products for investment choice menus.

Central Bank Financial Strength and Macroeconomic Outcomes

Central bank financial strength has not been a significant issue for a substantial period of time. However, recent theoretical and empirical literature argues that even central banks require sufficient level of financial strength to perform functions effectively and achieve their objectives. In this study, we examine the relationship between central bank financial strength and selected macroeconomic outcomes using an unbalanced panel dataset for selected advanced and emerging countries. We empirically model macroeconomic outcomes represented by price stability, output growth, real interest rate variability and nominal exchange rate variability with the measures of central bank financial strength. We observe that price stability is broadly related to central bank financial strength and find evidence to suggest that real interest rate variability can also be explained to a certain extent using central bank finances. Hence, empirical evidence suggests that weak central bank finances negatively impact the ability of policy makers to react inflationary pressures and interest rate instability. Our results have important implications for policy makers and central bankers. Particularly we suggest that maintaining health of central bank balance sheets and avoiding undue and persistent losses remain vital pre-conditions for desirable policy outcomes.

Human progress in South Asia: A multifaceted analysis

This study utilises a number of UNDP indices (the Human Development Index, the Gender-related Development Index, and the Human Poverty Index) to examine human progress in selected South Asian countries. It identifies the better and worse performers within the region, assesses whether their performance has been consistent over time, and deduces any broad policy implications. Within South Asia, Sri Lanka shows relatively better performance while Nepal, Bangladesh and Pakistan substantially lag behind. Notwithstanding the improvements over time, even the best performers in the region are at best ‘average’ compared to developing country standards. We emphasise the magnitude of the existing deprivations and the need to take corrective and preventive policy measures.

The global financial crisis and the mutual fund flow-performance relationship

Existing research shows mutual fund flow is highly correlated with past performance in an asymmetric way, namely flow–performance convexity. Fund managers pursue incentives to manipulate fund characteristics to invoke future fund inflows. Given this body of evidence, how has the global financial crisis impacted on fund volatility and fee structures with respect to the flow–performance relationship? Using data for the period 1999 to 2011 (disaggregated into three sample periods) for US mutual equity funds, empirical analysis in this study shows mutual funds adopt a low‐risk strategy resulting in the greatest flow–performance sensitivity. An incremental dampening effect is observed on flow–performance convexity due to increasing riskiness of portfolios, more significant in the GFC period. In addition, the results indicate that pure operating expense weakens the flow–performance sensitivity, especially in the post‐GFC period. Advertising effects trigger greater investor response to past performance, particularly throughout the GFC. It is also documented that front‐end load is not a statistically significant in determining the flow–performance relationship; nevertheless, back‐end load on average dampens investor response to past performance, and this dampening impact is more evident in the post‐GFC period.

THE RELATIONSHIP BETWEEN MUTUAL FUND FLOWS AND STOCK MARKET RETURNS: A COMPARATIVE EMPIRICAL ANALYSIS

This paper examines the relationship between aggregate equity mutual fund flows and excess stock market returns in Hong Kong and Singapore. Our findings demonstrate that, in Hong Kong, two-way causality exists between aggregate equity mutual fund flows and stock market returns. In comparison, despite their close proximity and reputation as global hubs no such finding is reported in the case of Singapore. We find that in Singapore, neither aggregate equity mutual fund flows Granger-cause subsequent excess stock market returns nor excess stock market returns Granger-cause subsequent aggregate equity mutual fund flows. The difference in findings is attributed to the degree of openness for each country. Additionally, for both Hong Kong and Singapore, we find that contemporaneous aggregate unexpected equity mutual fund flows positively affect excess stock market returns and vice versa. The study contributes to the literature by providing support with what is already known in regards investor heuristics, that excess stock market returns has a positive effect on aggregate equity mutual fund flows.

Liquidity and Market Efficiency Before and After the Introduction of Electronic Trading at the Sydney Futures Exchange

On October 28, 1999, the Floor Members of the Sydney Futures Exchange (SFE) voted to transfer SFE’s floor-based futures and options contracts to an electronic trading system. On March 4, 1999, the SPI ceased floor-trading and became screen-traded. Later, on Friday, November 12, 1999 the remainder of the floor-trading ceased, and on Monday, November 15, 1999 the Sydney Futures Exchange (SFE) became a completely automated system, with all trading conducted by SYCOM IV.

The Australian Stock Market: An Empirical Investigation

For decades, both practitioners and academics have been searching for the ideal asset-pricing model. The birth of the capital asset pricing model (CAPM) as a single-factor model in the 1960s revolutionized the concept of asset pricing as it enabled the quantification of the risk-return relationship. For practitioners, asset-pricing models may be important to identify whether stocks are over- or undervalued, which could influence their trading decisions. Academics, however, are particularly interested in finding an accurate asset-pricing model to facilitate the testing of the efficient market hypothesis (EMH).