Jonathan A. Batten

An analysis of the relationship between foreign direct investment and economic growth

Employing a panel data modelling technique, we contribute to two critical research issues: what is the link between Foreign Direct Investment (FDI) and economic growth and does the relationship change under different educational, institutional and economic conditions? Overall, the analysis supports the view that FDI has a stronger positive impact on economic growth in countries with a higher level of education attainment, openness to international trade and stock market development, and a lower rate of population growth and lower level of risk. Thus, countries undertaking reform of cross-border capital restrictions and controls and initiating other policy aimed at encouraging FDI need to ensure that broader social policy objectives–such as education and institutional reform–are also undertaken to leverage the benefits from FDI.

Volatility in the Gold Futures Market

We investigate the volatility structure of gold, trading as a futures contract on the Chicago Board of Trade using intraday (high frequency) data from January 1999 to December 2005. Apart from investigating the now familiar GARCH properties we also utilize a rarely used measure of volatility – the Garman Klass estimator – to provide new insights in intraday and interday volatility. This nonparametric measure incorporates the open, close, high and low price within a particular time interval. Both sets of results suggest significant variation across the trading day and week consistent with microstructure theories, although volatility is only slightly positively correlated with volume when measured by tick-count.

A perspective on credit derivatives

This contribution offers an explanation of credit derivatives as a group of financial instruments having a common purpose being the managing of credit exposures, and thus credit or default risk. This paper explores the links between their economic and financial manifestations and the legal bases for their widespread application. To ensure an understanding of the purposes served by each of the main types of credit derivatives, a detailed scrutiny of individual instruments is undertaken. Issues relating law and economics to trading in this type of derivative are investigated, then pricing issues and empirical evidence are considered. A summary brings together the range of features bearing upon the effective development of a market in these financial instruments.

Factors Affecting Ethical Management: Comparing a Developed and a Developing Economy

This paper compares a number of ethical management practices of firms in two different economies. The recent behaviour of firms, described in terms of industry, size, international involvement and ownership, in a developed, western economy (Australia) are contrasted with the behaviour of similar firms in an emerging, eastern economy (Sri Lanka). This paper extends an earlier empirical study by Batten, Hettihewa and Mellor (1997) on the relationship between key firm-specific variables and firm ethical management practices in Australia by drawing on similar survey data from Sri Lanka to facilitate an international comparison. The importance of this study is that it provides a valuable insight into the impact the level of economic development may have on ethical management behaviour and practice.

The structure of gold and silver spread returns

The price dynamics of gold and silver have long been a matter of popular concern and fascination. The objective of this study is to investigate the dynamics of the bivariate relationship between gold and silver prices. First, we investigate the spread, measured as the price difference between gold and silver trading as a futures contract. Then the presence of a fractal structure is measured using statistical techniques based on rescaled range analysis after accommodating short-term autocorrelated innovations in the return process. To highlight the economic consequences of fractality, we apply trading rules based upon the Hurst coefficient to the time series data. Importantly, we find that these rules out-perform simple buy-hold and moving-average strategies over varying holding periods.

Time variation in the credit spreads on Australian Eurobonds

Traditional theories of credit spread behaviour predict that changes in the risk-free interest rate and asset factors are negatively correlated with changes in credit spreads on risky bonds. This study investigates this proposition in the Australian context by investigating the spread between three different rating classes and four maturities of Australian dollar Eurobonds and Australian government bonds. Using a daily data set that is divided into three subperiods between 2 January 1995 and 25 August 1998, the results confirm this empirical proposition. However, the relative weight of the explanatory variables changes with the subperiods investigated.

Measuring credit spreads: evidence from Australian Eurobonds

Recent theoretical models including the closed-form valuation model of Longstaff and Schwartz (1995) predict that credit spreads are driven by both an asset and interest rate factor. In empirical studies the credit spread may be expressed as either the difference between, or ratio of, the risky bond to a riskless bond. Using a daily sample of non-callable Australian dollar denominated Eurobonds it is found, consistent with theory, that changes in credit spreads are negatively related to both changes in the return on All Ordinaries stock Index and changes in the Government bond yield. Interestingly, the ratio measure – termed a relative credit spread – tends to be statistically more significant than the alternate measure based upon the difference – termed an actual credit spread. However, it is shown that this result is spurious and due to the way in which relative credit spreads are constructed. Noting Duffees (1998) warning against using callable bonds, the use of only non-callable Eurobonds provides a cleaner result when compared with tests conducted by Longstaff and Schwartz (1995).

Why Japan Needs to Develop its Corporate Bond Market

Analysis of flow of funds data provides evidence of gradual disintermediation in Japans financial system, but the major channel for the allocation of domestic savings to productive assets remains bank intermediated lending. Overall, the Japanese financial system is still bank dominated, with the lending patterns of the past decade bearing witness to the adverse selection and moral hazard problems that may arise from a market overly reliant on intermediated financing. This study recommends further development of Japans corporate bond market with improved access by foreign participants including borrowers, investors and investment banks.

Liquidity and return relationships in an emerging market

In this paper, we investigate the relationship between liquidity and stock returns in the Vietnam stock market during the global financial crisis. Vietnam is one of a new group of frontier emerging markets referred to as CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa). We use a rich and detailed data set of firm characteristics to identify a positive relationship between liquidity and stock returns. This contradicts the negative correlation typically found in stock returns in developed markets. Our results support the proposition that when a market is not fully integrated with the global economy, a lack of liquidity will be a less important risk factor. Our findings contribute to those studies that highlight the diversification benefits from including frontier markets, which have a lower degree of integration with the global economy, in international portfolios.

The Ethical Management Practices of Australian Firms

This paper addresses a number of important issues regarding the ethical practices and recent behaviour of large Australian firms in nine industries. These issues include whether firms have a written code of ethics, whether firms have a forum for the discussion of ethics, whether managers consider that their firms activities have an environmental impact and whether there are any statistical relationships between the size, industry class, ownership, international involvement and location of the firm and its ethical management practices. These questions are examined by using data collected from a sample of 136 large firms operating in Australia.