Sunil S. Poshakwale

Modelling the volatility in East European emerging stock markets: evidence on Hungary and Poland

In this paper, stock market volatility in the East European emerging markets of Hungary and Poland is investigated using daily indexes. The results suggest the presence of non-linearity in the indexes through the BDSL statistic, while the presence of conditional heteroscedasticity is detected through LM tests. Conditional volatility is then modelled as a GARCH process; however, as measured by a GARCH-M model, this does not seems to be priced in the Hungarian and Polish stock markets. Moreover, the evidence rejects the Martingale hypothesis that future changes of stock prices in the two markets are orthogonal to past information. The well-known day-of-the-week effect, reflected in significantly positive Friday and negative Monday returns, does not seem to be present in these markets. While a marked decline in conditional volatility in the Polish market after June 1995 may be explained by appreciating Zloty exchange rates against the German Mark and increasing integration with developed markets, a similar (but less consistent) pattern between exchange rates (Hungarian against German and UK currencies) and conditional volatility is found for the Hungarian market.

Economic variables and stock market returns: evidence from the Athens stock exchange

This research examines the short run dynamic adjustments and the long run equilibrium relationships between selected macroeconomic variables, trading volume and stock returns in the emerging Greek stock market during the period 1990 to 1999. Empirical results show that short run and long run equilibrium relationship exists between inflation, money supply and trading volume and the stock prices in the Athens stock exchange. No short run or long run equilibrium relationship is found between the exchange rates and stock prices. The results of this research are consistent with the theoretical arguments and practical developments that occurred in the Greek stock markets during the sample period. The results also imply that the ASE is informationally inefficient because publicly available information on macroeconomic variables and trading volumes can be potentially used in predicting stock prices.

The Random Walk Hypothesis in the Emerging Indian Stock Market

This paper examines the random walk hypothesis in the emerging Indian stock market using daily data on individual stocks. The statistical evidence in this paper rejects the random walk hypothesis. The results suggest that daily returns earned by individual stocks and by an equally weighted portfolio show significant non-linear dependence and persistent volatility effects. The non-linear dependence takes the form of ARCH-type conditional heteroskedasticity and does not appear to be caused by nonstationarity of underlying economic variables. Though conditional volatility is time varying, it does not explain expected returns. Copyright Blackwell Publishers Ltd 2002.

The impact of the introduction of futures contracts on the spot market volatility: the case of Kuala Lumpur Stock Exchange

In investigating the impact of futures trading on spot market volatility, it is not obvious to what extent the results obtained using data from well developed and highly liquid markets are applicable to emerging markets. This paper provides evidence on the impact of the introduction of futures trading on spot market volatility using data from both the underlying and non-underlying stocks in the emerging Malaysian stock market. Results show that the onset of futures trading increases spot market volatility and the flow of information to the spot market. It is found that the underlying stocks respond more to recent news, while the non-underlying stocks respond more to old news. The lead–lag and causal relationship between futures trading activity and spot market volatility is also examined. VAR results show that the impact of the previous days futures trading activity on volatility is positive but short (only a day). This is further confirmed by Grangers causality test.

Predictability of stock returns using financial statement information: evidence on semi-strong efficiency of emerging Greek stock market

This article examines the predictability of stock returns in the Athens Stock Exchange (ASE) during 1993 to 2006 by using accounting information. Using panel data analysis, this article concludes that the selected set of financial ratios contains significant information for predicting the cross-section of stock returns. Results indicate that portfolios selected on the basis of financial ratios produce higher than average returns, suggesting that the emerging Greek market does not fully incorporate accounting information into stock prices and hence it is not semi-strong efficient.

Price determinants of American Depositary Receipts (ADR): a cross-sectional analysis of panel data

Evidence on ADR price discovery is provided using data for a large sample from 13 different countries for the period 1990 to 2000. Using Seemingly Unrelated Regression (SUR) and Feasible Generalized Least Squares (FGLS) models that incorporate both contemporaneous and lagged factors as exogenous variables in a cross-sectional panel data the findings indicate that movements in the underlying shares are the most influential factor affecting ADR prices. Further and contrary to the evidence provided in previous studies, the findings suggest that changes in the exchange rate significantly influence ADR prices. The results confirm previous findings that ADR price discovery occurs in the US stock market where they are listed and traded. Although, innovations in the home stock market do contribute to the ADR price discovery, its impact is not as strong as the one found for the innovations in the US stock market.

Exchange Rate and Stock Price Interactions in European Emerging Financial Markets Before and after the Euro

In this paper, we investigate price interactions between two main components of European emerging financial markets, namely the foreign exchange market and the stock market, before and after the adoption of the Euro by most European Union (EU) economies. We estimate and test a bivariate vector autoregressive model using daily observations on the stock price index and nominal exchange rate for Hungary, Czech Republic and Poland, during 2/1/1995 - 31/12/1998 for the pre-Euro period and 1/1/1999 - 31/12/2003 for the Euro period. We find that for the pre-Euro period, stock prices unidirectionally Granger-cause exchange rates in Hungary only; in the Czech Republic and Poland, mutually reinforcing interactions between exchange rates and stock prices seem to exist. During the Euro period, exchange rates unidirectionally Granger-cause stock prices in all the three sample economies. We also find higher positive correlations among the stock markets in Hungary, Czech and Poland during the Euro period than is the case in the pre-Euro period. Similar results are obtained with respect to the foreign exchange markets. These findings are consistent with the dynamic nature of the transition process, suggesting that causality and correlations are much more easier to detect as the markets become more integrated with the EU.

Determinants of corporate dividend policy in Greece

This article examines the determinants of corporate dividend policy of listed firms in Greece as a case study of an emerging market country. The analysis is based on 945 firm year observations of 63 nonfinancial firms which paid dividends annually from 1993 to 2007. The study uses the Generalized Method of Moments (GMM) to estimate the firm level factors that may determine why firms distribute dividends. We find that size, profitability and liquidity factors increase the probability to pay dividends. However, investment opportunities, financial leverage and business risk decrease the likelihood to pay dividends. On the whole, the findings lend support for the information asymmetry and agency cost theories. In addition, the factors that influence dividend policy in developed markets also appear to apply for this emerging market country.

Long-run and short-run relationship between the main stock indexes: evidence from the Athens stock exchange

Evidence on long-run and short-run relationship among the major stock indexes in the highly concentrated Athens stock exchange (ASE) is provided utilizing daily data for the period 01/01/96 to 31/12/03. The findings suggest that even though the sector indexes do not show a consistent and strong long-term relationship, the banking sector seems to have a strong influence on returns and volatility of other sectors at least in the short-run. The variance decomposition analysis confirms that although the variance of returns for most sectors is largely influenced by their own innovations, banking sector is able to explain 25% of variance of construction and insurance sectors and around 15% of the variance of industrial, investment and the holding sectors. The leading role of the banking sector implies that changes in the banking sector index could be potentially used in predicting short term movements in other sector indexes confirming that the ASE is not weak form efficient.

Investor Protection and Foreign Equity Portfolio Investments

We examine whether greater investor protection leads to greater portfolio investments by utilizing different forms of investor protection measures and bilateral foreign equity portfolio investment data across 37 developed and developing markets. After controlling for a host of confounding factors, we find strong evidence that countries with better investment profile, quality of institutions, and a track record of law enforcement appear to attract higher levels of foreign portfolio investments