Jin-Gil Jeong

Cross-border transmission of stock price volatility: evidence from the overlapping trading hours

Abstract Using high-frequency (5-minute returns) data, the transmission pattern of intraday volatility among three international stock markets (i.e., the United States, the United Kingdom, and Canada) during their overlapping trading hours (9:30–11:30 a.m. New York time). The major findings are as follows. First, the conditional variance of a domestic market is affected not only by the volatility surprises of its own market, but also by those of foreign markets. This finding holds for the United States as well as for Canada and the United Kingdom, implying that the information contained in the volatility surprises of each national market is clearly transmitted to other national markets. The volatility spillover is not unidirectional. Second, the magnitude of volatility spillover does not decrease monotonically as the lag length increases, indicating that the effect of a foreign volatility shock on the conditional variance of the domestic market tends to persist.

International price level linkages: Evidence from the post-Bretton Woods era

Abstract In this paper, we investigate the dynamic interdependence structure of national price levels of the Group of Seven (G-7) countries during the post-Bretton Woods era, i.e., 1973–1996. We find that a significant proportion of each countrys domestic inflation rate variance is attributable to foreign inflation shocks, especially in the long run. Also, all foreign countries are found to import U.S. inflation during the sample period as they used to under the Bretton Woods system. The empirical findings imply that flexible exchange rates do not insulate the domestic price levels from foreign inflation shocks, which invalidates a key argument for the flexible exchange rate regime.

Intra- and inter-continental transmission of inflation in Africa

In this paper, the transmission pattern of inflation in Africa is investigated in several contexts. Specifically, the results of the decomposition of variance are analysed, which are obtained by estimating an error correction model comprising 11 countries: seven major African countries and four industrialized countries, i.e., the USA, UK, France, and Japan. The major empirical findings are as follows. First, a surprisingly large fraction of domestic inflation in Africa is attributable to inflation shocks originating in foreign countries. Second, the USA is found to be the leading producer of inter-continental inflation in Africa. Third, although the Ivory Coast does seem to be the marginal leader, geographical proximity does not seem to play a significant role in intra-continental inflation transmission. Fourth, Friedman (Essays in Positive Economics, University of Chicago, 1953)s argument for the flexible exchange regime is found to be marginally valid for Sub-Saharan African countries: African countries adopting the independently floating exchange rate system tend to be less influenced by foreign inflation innovations.

International transmission of inflation under alternative exchange rate regimes: Empirical evidence and its implications

Abstract This is a study of the transmission pattern of inflation under alternative exchange rate regimes, fixed and flexible, among the Group of Seven (G-7) countries and their subsets, including four members of the European Union (EU) and two countries from North America. Our key empirical findings are as follows. The price levels of several countries that we found move together as a cointegrated system, forming an equilibrium relationship under both fixed and flexible exchange regimes. Second, the speed of adjustment estimates show that the transmission of inflationary disturbances across countries is less pronounced under the flexible exchange rate regime than under the fixed exchange rate regime. Third, the US was found to be the main producer of inflationary innovations among G-7 countries, whereas the UK was found to be the main producer of inflationary innovations among the EU countries, regardless of exchange rate regime.

Misalignment of the real exchange rate in the African Financial Community (CFA zone) and its policy implications

The purpose of this study is to see whether the same pre-devaluation overvaluation (1980 to 1993) of the Communauté Financière Africaine (CFA) franc exists for the post-devaluation period (1995 to 2004). As overvaluation can have significant negative impacts on exports, it is imperative to investigate whether this has continued. First, we found that the same overvaluation exists for the post-devaluation period. Second, we observe that post-devaluation, the overvaluation trend has been reverting and recurring downwards until 1999 and 2000 and steadily increasing since 2001. In fact, the average overvaluation for the zone is estimated at 25% in 2004 which is about 85% of the pre-devaluation level. Third, the economies where agriculture dominates are more overvalued than the economies where agriculture does not dominate. This stylized fact is similar to pre-devaluation observations by Devarajan (1997). Fourth, we also found that the oil producing countries are less overvalued than the nonoil producing countries; and the middle income economies are less overvalued than lower income economies. The latter two stylized facts are contrary to the pre-devaluation dynamics observed by Devarajan (1997). Finally, the empirical analysis suggests that the anticipated contribution of the parity relationship to the overvaluation of the currency is minimal. Instead, the macroeconomic variables that have the most negative influences on the Real Exchange Rate (RER) of the CFA franc are terms of trade shocks, increases in investment and aid inflow.

An Analysis of Analysts' Projected Gains

The authors find that analysts favor value stocks and prefer low-momentum stocks with high-growth prospects, which have been shown to provide excess returns in conjunction with value strategies. The results suggest that accusing sell-side analysts of chasing price momentum and pushing growth stocks amounts to selling them short.

Predicting Stock Market Returns with Time-VaryingModels and Parameters

This article investigates the controversial issue of stock market return predictability by using commonly used regression methodology and a parsimonious set of business cycle variables that were identified by the 1980s. Unlike earlier studies, the authors treat both models and estimation windows as variables. Their findings provide evidence of out-of-sample stock market return predictability related to business cycles. The results have practical utility for investment practitioners because their optimal models, based on a methodology, variables, and data that were available for real-time forecasts, provided significant explanatory power for future monthly stock market returns; their forecasts delivered substantial utility gains compared with average historical returns; and investment strategies based on the forecasts improved risk–return trade-offs compared with buy-and-hold stock market investments.

Intra-day transmission of international stock prices

Using five-minute index data from three major countries, i.e. the U.S., the U.K., and Canada, we investigate the pattern of cross-border transmission of stock price innovations during the overlapping trading hours, i.e. 9:30 a.m. to 11:30 a.m. in EST. A Sims test indicates that the U.S. stock market leads the U.K. market by five minutes and the Canadian market by fifteen minutes. Second, the U.S. stock market price is found to cause both the Canadian and U.K. market prices in the Granger sense, with little or no feedback received from either foreign market. Third, an extended-hours analysis of intra-day interactions between the U.S. and Canadian markets reveals a reverse J-curve pattern.