Salah A. Nusair

The J-Curve phenomenon in European transition economies: A nonlinear ARDL approach

Abstract This article examines the J-curve phenomenon for 16 European transition economies. While previous studies assume a linear relationship between the exchange rate and the trade balance, this paper allows for nonlinearity. Following Bahmani-Oskooee and Fariditavana (2015, 2016), the empirical method used is the nonlinear cointegrating autoregressive distributed lag (NARDL) model of Shin et al. (2013) in which short-run and long-run nonlinearities are introduced via positive (appreciation) and negative (depreciation) partial sum decompositions of the real exchange rate. We argue that the lack of support for the J-curve phenomenon could be due to the linearity assumption. This issue is examined by utilizing the linear and the NARDL models. Using the linear autoregressive distributed lag (ARDL) model, we are unable to find support for the J-curve phenomenon in any case. However, when the NARDL model is used, we are able to find evidence for the J-curve in 12 out of the 16 countries. This suggests that allowing for nonlinearity in the adjustment process is important when studying the J-curve phenomenon.

Non-linear Co-integration between Nominal Interest Rates and Inflation: An Examination of the Fisher Hypothesis for Asian Countries

Abstract This paper examines the long-run relationship between nominal interest rates and inflation for a group of Asian countries over the period February 1973–April 2007. We argue that the empirical failure to find evidence supporting the Fisher effect in previous studies may be attributed to the presence of non-linearities in the long-run relationship between nominal interest rates and inflation. We present evidence that the Fisher relation contains significant logistic smooth transition autoregression (LSTAR)-type non-linearity. This type of non-linearity is consistent with inflation targeting and the opportunistic behavior of policy-makers. Applying a non-linear unit root test to the residuals obtained from the Fisher relation decisively rejects the null hypothesis of a unit root against the alternative of non-linear but globally stationary in all the cases.

Testing for the Fisher hypothesis under regime shifts: an application to Asian countries

Abstract Previous empirical studies on the Fisher hypothesis have focused on developed countries, thus leaving developing countries with no or very few studies. This paper tests the validity of the hypothesis for six Asian countries over the period 1978–2005 using a cointegration procedure developed by Gregory and Hansen (1996) that allows for the presence of a one-time endogenously determined structural break in the cointegrating vector. The results indicate evidence in favor of the Fisher hypothesis for only Korea and Singapore after allowing for a regime shift and for Malaysia and Thailand with no evidence of regime shift. The results indicate the presence of the full Fisher effect for Korea and the partial effect for Malaysia, Singapore, and Thailand.

EXAMINING THE UNDERLYING PARITY CONDITIONS SUFFICIENT FOR REAL INTEREST PARITY FOR ASIAN COUNTRIES

This paper examines the underlying parity conditions upon which real interest parity (RIP) is predicted for some Asian countries relative to the U.S. and Japan over a period (1978–2009) containing significant changes using the multivariate cointegration procedure of Johansen et al. (2000) that allows for up to two pre-determined breaks. Each parity condition is examined to determine which is responsible for the rejection of RIP. The results suggest that the Fisher hypothesis is the least likely to violate RIP, whereas uncovered interest parity (UIP) appears to be most commonly violated. Stability tests suggest that the RIP relationship has been stable in most cases and that the impact of the Asian crisis and the Plaza Accord appears to be transitory, and that the RIP relationships have strengthened in the aftermath of the 1997–1998 Asian crisis.

Recursive Cointegration Analysis of Purchasing Power Parity: An Application to Asian Countries

Previous studies have utilized conventional cointegration tests that are based on the assumption that the long-run purchasing power parity (PPP) relationship is stable over the sample period. This assumption can be misleading if there were significant economic and policy changes over the sample period. To allow for the possibility of instability in the long-run PPP relationship, we utilize recursive cointegration analysis to test for the stability of cointegrating ranks and parameters. The results indicate evidence of cointegration for Korea, Malaysia, and Singapore, and a short window for Thailand around the 1997/98 Asian crisis with no evidence of structural breaks in the cointegrating vectors. Evidence of turbulence is detected around the 1997/98 crisis, the 1985 Plaza Accord, and around 1978-1984. Longrun parameters appear to have been stable for Malaysia, the Philippines, and Singapore, whereas instable for Indonesia, Korea, and Thailand.

Is East Asia an optimum currency area? A test of generalized purchasing power parity in the presence of structural breaks

This paper applies the generalized purchasing power parity (G-PPP) theory to assess the potential for an optimum currency area (OCA) for the ASEAN5 plus the big three (ASEAN5+Big3) during a period containing significant structural breaks, using the US, Japan and China as base countries. The relevance of considering breaks is demonstrated by utilizing the Johansen et al. (2000) procedure that allows for up to two predetermined breaks. The results provide support for long-run G-PPP and suggest that the larger group ASEAN5+Big3 could form an OCA in one step. Conversely, for smaller groups, such as the Big3, an OCA is not supported. However, adding one or more countries to the Big3 supports an OCA. The impact of the Asian crisis seems to be limited to when the US is the base country and the results suggest a change in the G-PPP relationship between the pre- and postcrisis periods. Moreover, stability tests suggest that G-PPP has been stable for the period analyzed.

Insider trading during the 2008 financial crisis

The literature suggests that insider trading may outperform the stock market by buying or selling stocks of the company in the short run and/or long run. For this research, we construct a daily index consisting of the most liquid and large company for each tested market: New York Stock Exchange (NYSE) and Kuwait Stock Exchange (KSE) to test for insider trading. Our finding indicates that insider trading at NYSE and KSE outperform the market in the short run only. The results suggest that both types of insider trading, buying or selling, are profitable in the short run. At the same time, our results conclude that all insiders trading are not profitable in the long run. Stocks that were sold or bought by insiders underperform the market in the long run. We also conclude that both types of insider trading activities significantly increased during the last quarter of 2008 and the first 2 months of 2009 in both NYSE and KSE.