Rita Biswas

Trading Volume and Market Volatility: Developed Versus Emerging Stock Markets

We investigate the relation between volatility and volume in 22 developed markets and 27 emerging markets. Compared to developed markets, emerging markets show a greater response to large information shocks and exhibit greater sensitivity to unexpected volume. We find a negative relation between expected volume and volatility in several emerging markets, which can be attributed to the relative inefficiency in those markets. Previous research reports that the persistence in volatility is not eliminated when lagged or contemporaneous trading volume is considered. Our findings show that, when volume is decomposed into expected and unexpected components, volatility persistence decreases.

The international market for corporate control: Evidence from acquisitions of financial firms

Abstract This study examines the impact of international acquisitions on the shareholder wealth of both acquiring and acquired firms, and compares it with that of domestic acquisitions. The results indicate significant differences—bidders in domestic acquisitions lose a statistically significant 0.39 percent, while bidders in international acquisitions do not lose, which supports the diversification motive for foreign expansion. Further, in terms of dollar values, unlike their domestic counterparts, international acquisitions are net wealth creating activities and the division of gains between bidders and targets are more equitable. A cross-sectional analysis of the abnormal returns suggests that the extent of controlling interest being acquired and previous presence in the target country both significantly affect the abnormal returns of the bidders and the method of payment significantly affects the abnormal returns for the targets.

Foreign exchange market efficiency: Evidence from the Gulf War period

This study examines the behavior of the forward market for foreign exchange for the British pound and the Japanese yen during the turbulent Gulf War period of 1990. The bivariate Engle-Granger technique in conjunction with a time-related dummy variable is used. The study supports market efficiency for both exchange rates, only after five weeks around the invasion week are excluded. Finally, an endogeneously determined structural break is found around the invasion week of the War.

Total Factor Productivity, Growth, and Entrepreneurship in Emerging Economies

Abstract This study examines the role of social and cultural acceptance of new ideas and the fear of failure in emerging economies within the context of entrepreneurship and growth (Romer Growth Model, 1986). Using data from the Global Entrepreneurship Monitor and the Panel Regression Analysis methodology for a sample of 22 emerging countries over the period 2008–2014, this study finds that perceived opportunities, knowledge of peers involved in startups, and media attention to startups, all indicators of the social acceptance of entrepreneurship, are statistically significant determinants of growth as measured by per capita Gross Domestic Product and reduction in unemployment. This influence is persistent even after controlling for time effects, despite the liquidity crunch and credit squeeze that occurred during the financial crisis starting in 2008. The fear of failure factor did not have a statistically significant influence on growth, confirming the notion that entrepreneurs in emerging economy environments, in particular, are prepared to pursue their goals doggedly, even in the face of less than 50:50 odds of succeeding.

The impact of political shocks on cointegrated exchange rate series

This study applies cointegration tests with time-dependent dummies to assess the impact of the Gulf War on the relationship between the forward exchange rate and the spot exchange rate using the British pound and the Japanese yen in terms of the US dollar. Cointegration of the spot and forward rate series cannot be supported for each of the exchange rates for a sample period around the Gulf War unless a five-week dummy is introduced starting in the Invasion week. The evidence is consistent with the existing literature in that it indirectly supports the long-run relationship between the spot and forward rates and confirms that short-run disruptions could occur and are consistent with the long-run relationship.

Order Flows, Differential Risk Premiums, and the UIP Puzzle

We jointly model purchasing power parity and uncovered interest rate parity (UIP) and show that violations to each stem from the same source. We test our model empirically using tick-by-tick customer-dealer quote data for 16 developed and emerging countries against the US dollar. Our results show that UIP violations are due to the existence of a risk premium in exchange rates as well as due to measurement error in using observed interest rate differentials as a function of the market’s expected return differentials. Using our combined macro-micro model substantially improves the fit of UIP.

Democracy and Stock Market Development: The African Experience

Abstract This study takes a broad approach to the relationship between political risk resolution through democracy and stock market development. Specifically, it examines the empirical relationship between the degree of democracy (ranging from non-democracies or autocracies to well-established “mature” democracies) and stock market size and liquidity. Using the random effects Generalized Least Squares methodology on a sample of 22 African countries and spanning the period 1985–2011, this study finds (i) the greater the degree of democracy, the greater the liquidity of the stock market but the impact on the size of the market is insignificant; (ii) the relationship between military leadership and stock market development is statistically insignificant; (iii) having constitutional limits on the number of years a chief executive is allowed to serve promotes stock market development; and (iv) a higher degree of political competitiveness has a significantly positive impact on both stock market size and liquidity.