Ken Hung

Does Military Spending Really Matter for Economic Growth in China and G7 Countries: The Roles of Dependency and Heterogeneity

This study revisits the causal linkages between military spending and economic growth in China and G7 countries (i.e. Canada, France, Germany, Italy, Japan, the UK, and the USA) by focusing country-specific analysis for the period 1988–2010. The panel causality analysis, which accounts for both cross-country dependency and heterogeneity across countries, is employed in this study. Our results find evidence of the neutrality hypothesis for Italy, France, and Germany, the military spending–growth detriment hypothesis for both Canada and the UK, and one-way Granger causality running from economic growth to military spending for China. Furthermore, we find a feedback between military spending and economic growth in both Japan and the USA. Thus, our results do not support that one size fits all.

Exchange-Rate Exposure of Taiwanese Exporting Firms

The purpose of this paper is to investigate the exchange-rate exposure of Taiwanese exporting firms. Particularly, we consider the effects of the timing of the three liberalization events through which the government carried out explicit policies to open gradually its foreign exchange and stock markets. First, we cannot corroborate that most exporting firms are individually exposed to exchange-rate risk. However, we cannot reject that the exporting firms are jointly exposed to exchange-rate risk in all sub-periods. Second, the timing of the three liberalization events greatly affects the exchange-rate exposure of Taiwanese exporting firms. Finally, the determinants of possibly time-varying exchange-rate exposure of exporting firms are exports-to-sales ratio, firm size, and the timing of the three liberalization events.

Revisiting purchasing power parity in Latin America: sequential panel selection method

This study applies the Sequential Panel Selection Method (SPSM), proposed by Chortareas and Kapetanios (2009) to test the validity of long-run purchasing power parity (PPP) in a sample of 15 Latin American countries using monthly data spanning from December 1994 to February 2010. SPSM classifies the whole panel into a group of stationary and nonstationary series. In doing so, we can clearly identify how many and which series in the panel are stationary processes. Empirical results from the SPSM using the Panel KSS unit root test (Ucar and Omay, 2009) with a Fourier function which accounts for any structural break in the data indicate that PPP holds in many of the Latin American countries studied.

Taiwan stock market and four-moment asset pricing model

Abstract This paper provides a detailed investigation of the risk-return characteristics of the Taiwan stock market. First, the stock market and individual stock return distributions were examined for the presence of co-skewness, excess kurtosis and their persistence. Next, a four-moment conditional CAPM was tested in up- and down-market conditions. Results of the investigation show that investors expect a lower (higher) return when the distribution of stock returns demonstrates positive co-skewness (co-kurtosis). In addition, results show evidence of the relative importance of the co-skewness and the co-kurtosis risks, compared with that of the covariance risk in explaining stock return variations. This is particularly evident over the up-market subperiods.

Mean reversion in G-7 stock prices: Further evidence from a panel stationary test with multiple structural breaks

In this study, we use the newly developed and refined panel stationary test with structural breaks to investigate the time-series properties of stock prices for the G-7 stock markets during the 2000-2007 period. The empirical results from numerous earlier panel-based unit root tests which do not take structural breaks into account indicate that stock prices for all the countries we study here are non-stationary; but when we employ panel stationary test with structural breaks, we find the null hypothesis of I(0) stationarity in stock prices cannot be rejected for any of the G-7 stock markets. Our results indicate that the efficient market hypothesis does not hold in these G-7 stock markets.

Can the PPP stand on the BRICS? The ADL test for threshold cointegration

We apply a newly developed Autoregressive Distributed Lag (ADL) test for threshold cointegration, proposed by Li and Lee (2010) to test the validity of long-run Purchasing Power Parity (PPP) for a sample of BRICS countries (i.e. Brazil, Russia, India, China and South Africa) over January 1996 to July 2010. The empirical results indicate that PPP only holds true for most of these countries under study, with the exception of Brazil. Our results have important policy implications for the BRICS countries under study.

An intervention analysis for the relationship between capital expenditure decisions and the market value of firms

This article is meant to explore the relationship between corporate capital expenditure decisions and the market value of firms using the intervention technique. The article shows that deep cuts in capital expenditures may, for sink-hole type projects, provide a positive signal to the marketplace. For non-sink-hole type projects, our findings are not quite consistent with those reported in McConnell and Muscarella (1985).

Nonlinear adjustment to purchasing power parity for Germany's real exchange rate relative to its major trading partners

This study applies a simple and powerful nonlinear unit-root test proposed by Sollis (2009) to test the validity of long-run Purchasing Power Parity (PPP) for Germanys real exchange rate vis-à-vis its trading partner countries. The empirical results indicate that PPP holds for Germany relative to its major trading partners, with the exception of Canada, and the adjustment towards PPP is nonlinear and asymmetric. This result provides support for PPP for Germany relative to its major trading partner countries.

Original article: Revisiting rational bubbles in the G-7 stock markets using the Fourier unit root test and the nonparametric rank test for cointegration

This paper re-investigates whether rational bubbles existed in the G-7 stock markets during the period of January 2000-June 2009 using the newly developed Fourier unit root test and a nonparametric rank test for cointegration. The empirical results from our Fourier unit test indicate that the null hypothesis of I(1) unit root in stock prices can be rejected for Canada, France, Italy and the UK. However, the empirical results from the rank test reveal that rational bubbles did not exist in the G-7 stock markets during the sample period.

Beta Instability of Firms: The Case of the Taiwan Stock Market During Its Financial Development

In this paper, we find evidence of the intra- and inter-period beta instability of firms in the Taiwan stock market during its financial development from 1982 to 1998. Particularly noteworthy is the result that the proportions of firms exhibiting beta instability, in the full sample and two well-known export-oriented industries, the textile and the electronics industries, are lower in the sub-period January 1987-December 1992 than in the other two sub-periods, January 1982- December 1986 and January 1993-December 1998. The result may be attributable to non-fundamental-driven optimism or pessimism about the market induced by speculative capital flows during the sub-period January 1987- December 1992.