Ramaprasad Bhar

Oil Prices and Equity Returns in the BRIC Countries

This paper measures the level by which global oil price returns influence the stock returns and volatility in the BRIC equity markets and observes the time-varying conditional correlation between BRIC equity returns and oil price returns. The study concludes that the level of impact of oil price returns on equity returns and volatility in the BRIC countries depends on the extent to which these countries are net importers or net exporters of oil. It also concludes that despite the aggressive economic growth of the BRIC countries in the past 25 years, the volatility of stock returns in these economies does not have a significant impact on the volatility of global oil price returns.

Diversification gains from American depositary receipts and foreign equities: evidence from Australian stocks

Abstract We investigate the relative advantages of American depositary receipts (ADRs), the underlying Australian stocks and the Australian equity index for a US investor seeking international diversification. We find that the ADR market is priced efficiently that the ‘law of one price’ holds. However, ADRs have an economically significant higher reward/risk ratio than underlying stocks, partly due to lower transactions cost. ADRs have a low correlation with the US market under high states of global and regional shocks. Portfolio managers could use the ADRs directly in enhanced indexing strategies. The dominant information flow is found to occur from the underlying stocks to the ADRs, while at the aggregate level the information flow is primarily from the US to the Australian market.

Global Oil Prices, Oil Industry And Equity Returns: Russian Experience

The purpose of this paper is to promote a greater understanding of the implications of oil price changes on the equity investment climate in Russia. A dynamic bivariate exponential general autoregressive conditional heteroscedastic (EGARCH) analysis shows that global oil price returns have significant impact on Russian equity returns and volatility. At the same time, a dynamic correlation analysis highlights Russias importance in the international geopolitical scene and its positioning as a reliable supplier of oil during times of turmoil in the Middle East. There are a number of challenges, however, that threaten to slow down the performance of the oil industry in Russia and compromise the countrys future economic growth and stock market performance.

Information and volatility linkage under external shocks: Evidence from dually listed Australian stocks

Abstract We examine the information flow between dually listed stocks traded in Australia and the US using a bivariate GARCH model. Our results indicate unidirectional information flow from the US equity market to the Australian market both with the dually listed stocks and the stock indices. Thus, in the case of Australian stocks, the US influence is more pervasive and it occurs at both mean and volatility levels of stock returns. These findings differ from previous research in that we observe the dominance of the American depository receipt (ADR) market on the underlying stocks. This asymmetric behavior in information flow is observable under both world market and regional market shocks.

An international study of causality-in-variance: Interest rate and financial sector returns

We demonstrate that causality-in-variance test could be employed to model the direction and lags in information flow between two variables and to avoid misspecifications. We apply this methodology to test the causality between the financial sector returns and interest rates of the G7 countries and show that the direction and the lead/lag structure of causality in the mean and the variance are more complex and dynamic than that have previously been reported. In most cases, we found two-way information flow both at the mean and the volatility level. Causality results give us insights into (i) how and when information is impacted on different market segments, and (ii) design more objective bi-variate models with the appropriate lag structure.

Volume and Volatility in Foreign Currency Futures Markets

In this paper we propose and test several hypotheses concerning time series properties of trading volume, price, short and long-term relationships between price and volume and the determinants of trading volume in forcign currency futures. The nearby contracts for British Pound, Canadian Dollar, Japanese Yen, German Mark and Swiss Franc are analyzed in three frequencies i.e. daily, weekly and monthly.We find supportive evidence for all the five currencies that the price volatility is a determinant of the trading volume changes. Furthermore, the volatility of the price process is a determinant of the unexpected component of the changes in trading volume. Also, there is a significant relationship between the volatility of price and the volatility of trading volume changes for three of the five currencies in the daily frequency and for one currency in the monthly frequency.

Alternative characterization of the volatility in the growth rate of real GDP

Abstract This paper has investigated an alternative characterization of the volatility in the growth rate of real GDP for Japan, UK and USA. A regime-switching approach has been explored to model the volatility process in the growth rate of real GDP. It has been motivated by recent evidence of change in the variance in GDP growth rate [Am. Econ. Rev. 90 (2000) 1464]. Using a Markov switching specification with two states, it is found that the model does a credible job in capturing the different episodes. The residual diagnostics are all supportive of the proposed specification. The economic intuition behind different volatility regimes is also given in addition to the slightly different behavior of these three OECD members.

Expectations of monetary policy in Australia implied by the probability distribution of interest rate derivatives

The paper describes and compares different methods of extracting the implied probability distribution of the underlying interest rate futures from the prices of traded options on these futures as well as from past futures prices. These methods are applied to short-term contracts on bank accepted bills trading on the Sydney Futures Exchange. The information on the distribution of the underlying asset thus obtained is very important to the central bank authorities since this allows them to monitor market expectations regarding future price movements. Alternatively market reaction to central, bank monetary policy changes may be judged this way. It is also important to practitioners for use in pricing over the counter (OTC) or exotic products where the trading volume is not particularly high. In that situation, the information on the distribution recovered from highly traded products from the exchange may be used as representative for the OTC products as well. As an empirical application, the recovered information on distribution is analysed in the context of reductions in interest rates in Australia by the Reserve Bank between July 1996 and May 1997.

Linkages among agricultural commodity futures prices: some further evidence from Tokyo

Booth and Ciner (2001) find that the prices of commodity futures traded on the Tokyo Grain Exchange (TGE) do not move together in the long run. This study analyses whether their empirical results remain true for a more recent period. The empirical results suggest that the cointegrating relation exists among commodity futures contracts from 2000 to 2003, but not earlier during the 1990s. This indicates that the price mechanism works better and the long-run relationships among prices become more apparent as a market develops.

The Estimation of the Heath-Jarrow-Morton Model by Use of Kalman Filtering Techniques

A fairly flexible functional form for the forward rate volatility is applied in the Heath-Jarrow-Morton model of the term structure of interest rates to reduce the system dynamics to Markovian form. The resulting stochastic dynamic system is cast into a form suitable for estimation by use of nonlinear filtering methodology. The technique is applied to 90-day bank bill and 3-year treasury bond data in the Australian market.