Jung-Suk Yu

Financial Development and Economic Growth: New Evidence from Panel Data

This study provides new evidence on the role of financial development in accounting for economic growth. To derive feasible policy implications, we estimate not only unbalanced panel regressions with period fixed effects, but also variance decompositions of annual GDP growth rates to examine what proxy measures are most important in economic growth over time and how much they contribute to economic growth across geographic regions and income groups. We find strong linkages between financial development and economic growth in high-income OECD countries, but not in South Asian and Sub-Saharan African regions. Therefore, it may be necessary to make different efforts to achieve steady economic growth across geographic regions and income groups.

A re-examination of financial development, stock markets development and economic growth

This study provides new evidence on the role of financial development and stock market development in accounting for economic growth across geographic regions and income groups. To derive feasible policy implications, we estimate not only unbalanced panel regressions with period fixed effects, but also variance decompositions of annual Gross Domestic Product (GDP) growth rates to examine what proxy measures are most important in economic growth over time and how much they contribute to economic growth. We find distinct direction, timing and strength of the causal links between financial development, stock market development and economic growth based on the results of Granger causality tests. Therefore, it may be necessary to make different efforts to achieve steady economic growth across geographic regions and income groups.

Credit Default Swaps and Sovereign Debt Markets

This study investigates the link between price discovery dynamics in sovereign credit default swaps (CDS) and bond markets and degree of financial integration of emerging markets. Using CDS and sovereign bond spreads, the price discovery mechanism was tested using a vector error correction model. Financial integration is measured using news-based methods. We find that sovereign CDS and bond markets are cointegrated. In 57 percent of times, the CDS market leads in price discovery by adjusting before bonds to new information regarding credit risk. In 29 percent of times, bond markets are sources of price discovery. We also find a strong positive correlation of 0.84 between degree of financial integration and bond market information share. The evidence suggests that changes in sovereign credit risk and bond yields are significantly influenced by common external (global) factors while country specific factors play an insignificant role.

Emerging Market Efficiencies: New Zealand's Maturation Experience in the Presence of Non-Linearity, Thin Trading and Asymmetric Information

This paper examines the efficiency of New Zealands stock market by assessing the prevalence of thin trading, non-linearity and information asymmetry. We find that the efficiency of this emerging market has been enhanced over time due to regulatory changes and the transition of the New Zealand economy to a free market orientation. During the 1970s and 1980s, the stock market appears to have been inefficient with thin trading and non-linearity as leading causative agents. Our evaluation of non-linear models, adjusted for thin trading effects, however, strongly suggests that the New Zealand stock market has become more efficient since 1990.

Rational Speculative Bubbles: An Empirical Investigation of the Middle East and North African Stock Markets

Despite recent extreme fluctuations of the Middle East and North African (MENA) stock markets, we do not find strong evidence of rational speculative bubbles in the perspective of both domestic and U.S.-based investors. Fractional integration tests built on ARFIMA models do not support the possibility of bubbles in the MENA stock markets. Similarly, duration dependence tests based on nonparametric Nelson-Aalen hazard functions not only reject the existence of bubbles but also support equality of hazard functions between domestic and U.S.-based investors without regard to the rapid financial liberalization and integration in the MENA stock markets.

Volatility Clustering, Leverage Effects, and Jumps Dynamics in Emerging Asian Equity Markets

This paper proposes a mixed GARCH-Jump model that is tailored to the specific circumstances arising in emerging equity markets. Our model accommodates lagged currency returns as a local information variable in the autoregressive jump intensity function, incorporates jumps in the returns and volatility, and allows volatility to respond asymmetrically to both normal innovations and jump shocks. The model captures the distinguishing features of the Asian index returns and significantly improves the fit for those markets that were affected by the 1997 Asian crisis. Our proposed model yields higher levels of conditional kurtosis and superior forecasts of the expected arrival rate of jumps.

Rational speculative bubbles in MENA stock markets

Purpose - The purpose of this paper is to examine the existence of rational speculative bubbles in the Middle East and North African (MENA) stock markets. Design/methodology/approach - To complement shortcomings of the traditional bubble tests, such as unit root tests and cointegration tests, mainly relying on expectations of future steams of dividends, the authors employ fractional integration tests and duration dependence tests. Findings - Despite recent extreme fluctuations of MENA stock markets, fractional integration tests built on autoregressive fractionally integrated moving average models do not support the possibility of bubbles in the MENA stock markets. Similarly, duration dependence tests based on nonparametric Nelson-Aalen hazard functions not only reject the existence of bubbles but also support equality of hazard functions between domestic and the US-based investors without regard to the rapid financial liberalization and integration in the MENA stock markets. Originality/value - The reliable results of bubble tests of the MENA stock markets provide domestic and international investors as well as policy makers with invaluable benchmark to better understand the irregular and highly fluctuating stock market behaviors of the MENA stock markets compared to other developed and emerging stock markets. For domestic and international investors, the formal analysis of MENA stock markets behavior including rational speculative bubbles will help them in their portfolio decisions and hedging purposes. Similarly, the empirical results of bubble tests in the paper will be also helpful to policymakers in MENA countries to take actions to improve the functioning of these dynamic markets.

Financial Sectors Reform and Economic Growth in Morocco: An Empirical Analysis

This study analyses the impact of financial sector reforms from the early 1990s on promoting economic growth in Morocco. To derive feasible policy implications, we estimate not only pooled regressions, but also variance decompositions of GDP growth rates to examine what proxy measures of financial development are most important in economic growth over time and how much they contribute to economic growth across geographic regions and income groups. We find strong linkages between financial development and economic growth in high-income OECD countries, but not in East Asia and Pacific, South Asian and Sub-Saharan African regions, in the short run. Therefore, it may be necessary for Morocco to make different policy efforts to achieve steady economic growth in the long run. JEL Classification: G21, O16, C33

Determinants of Credit Default Swaps in International Markets

This paper reexamines the determinants of credit default swaps (CDS) spreads in the U.S., Europe, and Asia-Pacific markets with a new data set using linear regressions. These determinants are categorized into two groups: firm level and macroeconomic variables. We also include two non-traditional moment risk variables in the analysis as we suspect that these measures may capture the effects of possible extreme downside risk, or extreme negative scenarios, in the underlying credit valuation process. Our findings from the U.S. and abroad confirm the existing evidence on the significant relationship between theoretical determinants of default risk and actual market pricing of CDS. Also, we provide additional evidence on the importance of the interaction between macroeconomic and firm-specific variables, which is common throughout the world.

A Re-Examination of the U.S. Underground Economy: Size, Estimation, and Policy Implications

We re-examine the size of the underground economy in the U.S. between 1972 and 2006, after properly adjusting for several statistical issues relating to its estimation. The dynamic error-correction-based currency demand approach confirms that income tax rates have no contemporaneous effect on currency demand, but they have positive and significant effects with a one-period lag. In addition, we observe that the size of the underground economy in the U.S. has grown considerably during the post-1990 period from