Raj Aggarwal

Evidence of long-run purchasing power parity: analysis of real asian exchange rates in terms of the Japanese yen

Abstract In this paper we find strong new evidence in favour of the long-run purchasing power parity (PPP) hypothesis in the bilateral real exchange rates between the Japanese yen and the currencies of the most important southeast Asian economies only when the presence of several possible structural breaks of the series is taken into account. Such evidence for PPP is weaker for these southeast Asian exchange rates with the US dollar, the German mark and the Australian dollar.

Balance of trade announcements and asset prices: influence on equity prices, exchange rates, and interest rates

Abstract This paper examines the informational impact of traded balance announcements on asset prices including equities, currrencies, long- and short-term debt instruments, and financial futures. This study finds that in the 1980s, prior to the 1985 ‘Plaza Agreement’ for International economic cooperation, information in trade balance announcements seem to have influenced only interest rates. However, in the 1985–1987 period such announcements also influenced stock prices and currency values. These influences intensity further in the 1987–1988 period. Thus, asset prices are sensitive to news in trade balance announcements and this sensitivity seems to have increased significantly in recent years with important implications for asset pricing models and economic policy formulation. (JEL F30).

Strategies for Internationalizing the Business School: Educating for the Global Economy

The global dimension of business has grown greatly in importance and has become an important aspect of business education. Business school curricula must be modified to reflect this new dimension. This article presents and evaluates the various strategies to achieve this change and finds that the strategy most appropriate for a given school depends on its objectives and the nature and extent of its long term commitment to the internationalization process.

Day of the week effects, information seasonality, and higher moments of security returns

Abstract This paper documents significant day of the week variations in equity return means, standard deviations, skewness, and kurtosis which are stronger for smaller firms. Although day of the week variations in earnings and dividend announcements seem to be only a limited explanation of the day of the week effects in security returns, the day of the week differences in equity return kurtosis documented here, consistent with investor aversion for even moments, do seem to be a partial explanation for the observed day of the week differences in equity returns. Thus, future studies of the size and day of the week effects in asset returns should account for higher moments such as kurtosis to avoid mis-specification of risk.

Cointegration among Southeast Asian and Japanese currencies: Preliminary evidence of a Yen bloc?

Abstract Financial integration in Asia is assessed in this paper by examining the time-series stochastic behavior and cointegration in a set of five Asian currencies, the Japanese Yen (JY), Hong Kong Dollar (HK), Malaysian Ringgit (MR), Philippines Peso (PP), and the Singapore Dollar (SD), for the last eight years of the decade of the 1980s. Significant non-stationarity, deviations from normality, and the presence of unit roots were documented for each currency. Furthermore, in contrast to the findings for developed country liquid currencies, these five currencies were found to be cointegrated. These findings have important implications for understanding the expanding international role of the Japanese Yen and the nature of international financial integration in Asia as well as for developing hedging strategies for investments and cash flows denominated in these Southeast Asian currencies.

The relationship between daily U.S. and Japanese equity prices: Evidence from spot versus futures markets

Abstract The daily and overnight transmission of equity prices between the U.S. and Japan is examined in this paper. This study documents that the use of the opening value of an equity index to represent equity prices at the open is unlikely to be reliable and the calculated opening values of the Nikkei 225 and (especially) the S&P500 indexes mostly reflect prior days closing prices. Unlike prior studies, this paper accounts for this problem of non-synchronous trading at the open and finds that U.S. equity prices do not lead Japanese equity prices as both U.S. and Japanese opening equity prices reflect overnight price changes in the other market.

Project Exit Value as a Measure of Flexibility and Risk Exposure

ABSTRACT In applications of the classic methods of capital budgeting the emphasis has always been on the decision to “enter” a project, i.e., to select the project(s) to be executed. Although this decision remains a very important one, it is important to examine the decision to “exit a project”. When should one get out of a project or what are the financial consequences of a premature termination of an investment project? This paper introduces an extended version of the net present value rule for exit calculations. The impact of premature termination of a project can be graphed and forms the exit economic profile for the “life—cycle” of the project. This allows the investor to quantify the economic consequences of exiting the project at different points in time providing a measure of the risks involved in terminating or exiting a project. This type of analysis is particularly important for projects that face environmental uncertainty or those that may be terminated prematurely for example by technology, s...

Asymmetric impact of trade balance news on asset prices

Abstract This study documents significant asymmetrical impact of information in trade balance announcements on prices of assets such as equities and foreign exchange rates. Interestingly, foreign exchange rates and equity prices were less responsive to large surprises in the trade balance but more responsive to surprises within one standard deviation of the average. This asymmetry in market reaction to trade balance news seems consistent with the asymmetric nature of central bank intervention policy commitments during the late 1980s. These results documenting the asymmetric impact of news on asset prices may have important implications for asset pricing models and economic policy formulation.

Dividend yields and stock returns: Evidence from the Tokyo Stock Exchange

This study examines the Tokyo Stock Exchange (TSE) and documents that it is characterized by a significant dividend yield effect similar to that found in U.S. markets. The study also confirms the existence of a significant size and seasonal anomaly in the TSE as documented in prior literature. The dividend yield effect is found to be significant in January, March, June, and December but not in the other months. The significance of the dividend yield effect is found to hold even after controlling for the size effect. The tax rationale as an explanation for the dividend yield effect does not appear to be valid for the Japanese stock market. The fact that these anomalies behave in a fashion similar to that observed in the United States is suggestive of either an integrated global capital market or the omission of common elements in the pricing process used or both.

International Business Through Barter and Countertrade

Abstract This paper starts with a definition and review of barter and countertrade and the reasons for their growth in modern times. The author develops a classification scheme for the various forms of countertrade based on the time horizon and the degree of capital involved. In addition, he provides a conceptual framework for understanding the various forms of countertrade. He concludes by examining corporate opportunities and risks in countertrade.