Mohammad S Hasan

Tax then spend or spend then tax? Experience in the UK, 1961–93

Using a hybrid of cointegration theory and Granger-Akaikes synthesis of modelling strategy, we have reexamined the causal relationship between tax revenue and government spending in the UK in a cointegrated VAR model. The results are indicative of a bi-directional causality between revenue and spending.

New evidence from an alternative methodological approach to the defence spending-economic growth causality issue in the case of mainland China

Proposes to re-examine empirically the causal relationship between defence spending and economic growth in mainland China. First, using a VAR modelling technique with suitable diagnostics, e.g. Akaike’s FPE statistics and a likelihood ratio test for over- and under-fitting the causal model, the results indicate a positive unidirectional causality flowing from defence spending to economic growth. Second, by evaluating a dynamic vector error-correction model, variance decomposition and impulse response functions, then analyses the direction, duration and strength of Granger-causality between defence spending and economic growth. The results broadly indicate that defence spending and economic growth did share a common trend over the sample period under analysis, but it was the former which stimulated the latter. Moreover, it is defence spending that has a much more perceptible and prolonged effect on economic growth, giving rise to implications that although expenditure on defence may have been politically motivated, over the long-run this spending did play a significant indirect role in enhancing the growth potential of this, for many years, closed-door economy.

Epidemiology of Invasive Pneumococcal Disease in Bangladeshi Children Before Introduction of Pneumococcal Conjugate Vaccine.

Background: Because Bangladesh intended to introduce pneumococcal conjugate vaccine (PCV)-10 in 2015, we examined the baseline burden of invasive pneumococcal disease (IPD) to measure impact of PCV. Methods: During 2007–2013, we performed blood and cerebrospinal fluid cultures in children <5 years old with suspected IPD identified through active surveillance at 4 hospitals. Isolates were serotyped by quellung and tested for antibiotic susceptibility by disc diffusion and E-test. Serotyping of culture-negative cases, detected by Binax or polymerase chain reaction, was done by sequential multiplex polymerase chain reaction. Trends in IPD case numbers were analyzed by serotype and clinical syndrome. Results: The study identified 752 IPD cases; 78% occurred in children <12 months old. Serotype information was available for 78% (442/568), including 197 of 323 culture-negative cases available for serotyping. We identified 50 serotypes; the most common serotypes were 2 (16%), 1 (10 %), 6B (7%), 14 (7%) and 5 (7%). PCV-10 and PCV-13 serotypes accounted for 46% (range 29%–57% by year) and 50% (range 37%–64% by year) of cases, respectively. Potential serotype coverage for meningitis and nonmeningitis cases was 45% and 49% for PCV-10, and 48% and 57% for PCV-13, respectively. Eighty-two percent of strains were susceptible to all antibiotics except cotrimoxazole. Conclusion: The distribution of serotypes causing IPD in Bangladeshi children is diverse, limiting the proportion of IPD cases PCV can prevent. However, PCV introduction is expected to have major benefits as the country has a high burden of IPD-related mortality, morbidity and disability.

Stock returns, inflation and interest rates in the United Kingdom

The Fisherian theory of interest asserts that a fully perceived change in inflation would be reflected in nominal interest rates and stock returns in the same direction in the long run. This paper examines the Fisherian hypothesis of asset returns using alternative techniques of linear regression, and vector error correction models to examine the nature of the relationship between stock returns and inflation in the UK. Consistent with the Fisherian hypothesis, empirical evidence in the linear regression model suggests a positive and statistically significant relationship between stock returns and inflation, which regards common stock as a good hedge against inflation. The results based on the unit root and cointegration tests indicate a long-run reliable relationship between price levels, share prices, and interest rates which could be interpreted as the long-run determinants of stock returns. The findings also suggest a bidirectional relationship between stock returns and inflation. The evidence of a significant Fisher effect is robust across model specifications.

Residential investment, macroeconomic activity and financial deregulation in the UK: an empirical investigation

This paper empirically examines the relationship between UK macroeconomic variables and residential investment over the period 1968Q1 to 1999Q1. The impact of macroeconomic variables are evaluated by computing both historical decompositions (HDCs) and variance decompositions (VDCs) in a six-variable VAR model. The VDC results suggest fiscal policy variable exerts a modest and significant impact on residential expenditures, monetary policy variables appear to have larger and perceptible influences on residential expenditures in the long run. The HDC findings, on the other hand, indicate that money stock marginally lowers the MSE of base projection of residential investment over the pre-deregulation period. Nevertheless, the explanatory power of money is shown to evaporate during the post-deregulation period. Thus, our findings strongly confirm that the deregulatory measures of 1980s have significantly altered the nature and strength of causal linkages between residential investment and macroeconomic variables.

An alternative approach in investigating lead–lag relationships between stock and stock index futures markets – comment

This study re-examines and reinterprets the empirical results of Brooks et al. (1999) which investigated the lead–lag relationship between stock indices and stock index futures markets. Contrary to the contention of Brooks et al. that the stock index futures market leads the stock market, it is found that their linear Granger causality tests exhibit overwhelming evidence of a contemporaneous relationship and a bidirectional relationship between spot and futures returns. The interpretation of the empirical evidence of Brooks et al., although different from theirs, is equally supportive of the theoretical predictions of the cost-of-carry model and the efficient market hypothesis.

ON THE VALIDITY OF THE RANDOM WALK HYPOTHESIS APPLIED TO THE DHAKA STOCK EXCHANGE

This paper employs a battery of statistical tests to examine the random walk variant of the weak-form efficient market hypothesis (EMH) using the daily data of the Dhaka Stock Exchange, the major equity market of Bangladesh, over a period of January 1990 to December 2000. The test results, however, are at variance across testing procedures and sub-periods. Results based on the random walk model and unit root tests show that the null hypothesis of randomness cannot be rejected and stock prices have a significant random walk or permanent component. Our analysis of autocorrelation functions indicates mean-reversion behavior of stock returns in most cases albeit with stock returns exhibiting some memory and predictable components during the bubble and post-speculation periods. The evaluation of the EGARCH-M model suggests significant asymmetric and leverage effects during the sub-period of speculative bubbles of 1996–1997. The BDS test indicates evidence of nonlinear long-term dependence during the pre-speculation period, while during the speculation and post-speculation periods the null hypothesis of nonlinear independence was not rejected. Overall, based on this evidence we do not categorically claim that the Dhaka Stock Exchange is weak-form efficient. However, these findings underscore the predictive significance and relevance of the random walk hypothesis as a generalized theory in explaining movements of share prices.

The effectiveness of dynamic hedging: evidence from selected European stock index futures

This paper estimates time-varying optimal hedge ratios (OHRs) using a bivariate generalized autoregressive conditional heteroscedastic (GARCH) error correction model. The GARCH specification accounts for time-varying distribution in asset returns while the error correction term preserves short-run deviations between two fundamentally linked assets. Using stock index and stock index futures from four European countries, we compare the hedging effectiveness of the GARCH error correction model with alternative hedging models that hold the OHR constant. Overall, in three out of four cases, the GARCH error correction model is shown to offer superior risk reduction compared with the competing models. Finally, we also estimate the OHRs using the GARCH-X model, which allows the error correction term to be a determinant of the time-varying volatility. The GARCH-X model performs similar to the GARCH error correction model. The results presented in this paper have important insights into the risk management of financial assets when returns distribution changes over time.

Money, output, price and causality in mainland China

This paper re-examines the relationship between money and other macroeconomic variables in mainland China. The results of a four-variable VAR analysis are indicative of a bi-directional causality between narrow money supply and real income. However, contrary to most research work in this area, the findings support a uni-directional causality from broad money to real income, making the former a good intermediate target variable. Moreover, these results cast serious doubts about the relevance of the quantity theory of money for price determination in China.

A century of Purchasing Power Parity: evidence from Canada and Australia

This study empirically examines the Purchasing Power Parity hypothesis using more than a century span of annual data of Australia, Canada and Britain and a battery of unit root tests. The study finds support for the validity of the Purchasing Power Parity hypothesis in the long-run within the framework of both linear and non-linear cointegration tests. The error correction models indicate that it takes four to five years for the short-run deviations from PPP to revert back to the long-run equilibrium. The results also indicate a non-linear mean reversion behaviour in the case of Canada. Overall, the evidence of support for the PPP hypothesis is robust across specifications and testing procedures.