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Published Articles for Year 2001
Multinational Finance Journal, 2001, vol. 5, no. 1, pp. 1-33 |
Amalia Di Iorio , RMIT University, Australia    Corresponding Author
Robert Faff , RMIT University, Australia

This article analyzes the impact of movements in the Australian dollar/Japanese yen (AUDJPY) and the Australian dollar/US dollar (AUDUSD) exchange rates on the returns of the Australian equities market. Specifically, this paper investigates the nature of exchange rate exposure across increasing return measurement intervals, enabling an examination of both its short-term and its long-term effect on stock returns. Consistent with previous literature, considerable evidence of long-term exchange rate exposure is found. Further, it is found that in the long-term the Australian equities market in general is exposed to fluctuations in the AUDJPY, while only some Australian industries are exposed to movements in the AUDUSD. Finally, convincing evidence in terms of the determinants of foreign exchange exposure is not found

Keywords : Australian stock market; exchange rate risk; intervaling
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Multinational Finance Journal, 2001, vol. 5, no. 1, pp. 35-58 |
Tim Brailsford , Australian National University, Australia    Corresponding Author
Jack H.W. Penm , The Australian National University, Australia
R. Deane Terrell , The Australian National University, Australia

Vector autoregressive models are increasingly being used in the analysis of relationships within and between financial markets. In such models, there are circumstances that require zero entries in the coefficient matrices. Such circumstances can be particularly relevant in the context of markets with special characteristics, such as emerging economies. This paper shows that a direct extension of the use of the Yule-Walker relations for fitting vector autoregressive models with zero-non-zero patterned coefficient matrices is inconsistent with statistical procedures as the resultant estimated variance-covariance matrix of the white noise disturbance process becomes non-symmetric. This inconsistency can cause a breakdown when testing financial theory. The paper provides a consistent adjustment which fits with the theory. The practical use of the adjustment is demonstrated in a vector system comprising variables from the Hong Kong stock market and foreign exchange markets

Keywords : foreign exchange market; time series; VAR models; Yule-Walker relations
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Multinational Finance Journal, 2001, vol. 5, no. 1, pp. 59-86 |
Wing-Keung Wong , Hong Kong Baptist University    Corresponding Author
Boon-Kiat Chew , Independent Economic Analysis (Holdings) Limited
Douglas Sikorsk , National University of Singapore, Singapore

This paper tests the performance of stock market forecasts derived from technical analysis by means of a specific indicator. The indicator is computed from E/P ratios and bond yields. Several stock markets are studied over a 20-year period. Two test statistics are introduced to utilize the indicator. The results show that the forecasts generated from the indicator would enable investors to escape most of the crashes and catch most of the bull runs. The trading signals provided by the indicator can generate profits that are significantly better than the buy-and-hold strategy

Keywords : bond yield; E/P ratio; interest rate; standardized yield differential; yield differential
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Multinational Finance Journal, 2001, vol. 5, no.2, pp. 87-112 |
Nickolaos Travlos , ALBA, Greece, and Cardiff Business School, U.K.    Corresponding Author
Lenos Trigeorgis , University of Cyprus, Cyprus, and University of Chicago, U.S.A.
Nikos Vafeas , University of Cyprus, Cyprus

This article examines the stock market reaction to announcements of cash dividend increases and bonus issues (stock dividends) in the emerging stock market of Cyprus. Both events elicit significantly positive abnormal returns, in line with evidence from developed stock markets. This study contends that special characteristics of the Cyprus stock market delimit applicability of most traditional explanations for cash and stock dividends in favor of an information-signaling explanation. The empirical results are generally inconsistent with these contentions

Keywords : cash dividends; emerging markets; stock dividends
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Multinational Finance Journal, 2001, vol. 5, no. 2, pp. 113-128 |
Yin-Wong Cheung , University of California Santa Cruz, U.S.A.    Corresponding Author
Frank Westermann , University of Munich, Germany

Daily data from the German and U.S. equity markets before and after the introduction of the Euro are used to study the effect of exchange rate regime choices on equity markets. It is found that, since the introduction of the Euro, the volatility and the persistence of the German stock index have fallen significantly relative to those of the U.S. index. However, the switch in exchange rate arrangement appears to have no significant implication for the causal relationships – both the mean and variance causalities between the two equity markets

Keywords : n/a
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Multinational Finance Journal, 2001, vol. 5, no. 2, pp. 129-148 |
Jussi Nikkinen , University of Vaasa, Finland    Corresponding Author
Petri Sahlström , University of Vaasa, Finland

This study examines how the U.S. macroeconomic news releases affect uncertainty in domestic and foreign stock exchanges. For that purpose, the behavior of the implied volatilities from the U.S. and Finnish markets is investigated around the employment, producer price index (PPI) and consumer price index (CPI) reports. The results confirm the hypothesis that implied volatility increases prior to the macroeconomic news release and drops after the announcement in both markets. This implies that uncertainty associated with the U.S. macroeconomic news releases is reflected in foreign stock markets as well. Of the macroeconomic news releases, the employment report has the largest impact on uncertainty

Keywords : implied volatility; index options; macroeconomic news; uncertainty
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Multinational Finance Journal, 2001, vol. 5, no. 2, pp. 149-154 |
Adam Steen , Monash University, Australia    Corresponding Author
Petko Kalev , Monash University, Australia
Keith Turpie , Swinburne University of Technology, Australia

This article builds on an earlier study by Choi and Nam (1998) on the initial price performance of Public Sector Initial Public Offerings PIPOs in 30 countries. They report that, in general, PIPOs are more underpriced than private sector IPOs. Our study of the Australian market suggests the opposite is the case. The difference in the underpricing between their study and the evidence presented here is most likely due to the characteristics of Australian PIPOs. These characteristics include the tender process adopted, the extensive marketing employed and the dominant position of many of the issuers

Keywords : initial public offerings; initial return; privatization
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Multinational Finance Journal, 2001, vol. 5, no. 3, pp. 155-173 |
Ephraim Clark , Middlesex University, U.K.    Corresponding Author
Radu Tunaru , Middlesex University, U.K.

This paper presents a model that measures the impact of political risk on portfolio investment when the political risks are multivariate and correlated across countries. The multivariate approach generalizes the single country model but retains most of its characteristics in terms of its ability to price political risk based on the stochastic process of exposure to loss and the expected frequency of loss causing events. The methodology is compatible with modern portfolio theory, straightforward to apply and can accommodate the traditional techniques in political risk assessment for the estimation of the relevant parameters.

Keywords : geometric Brownian motion; insurance policy; Poisson arrival process; portfolio investment; political risk
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Multinational Finance Journal, 2001, vol. 5, no. 3, pp. 175-200 |
Angela Huang , Reserve Bank of New Zealand, New Zealand    Corresponding Author
Dimitri Margaritis , University of Waikato, New Zealand
David Mayes , Bank of Finland, Finland

Ten years of inflation targeting in New Zealand is used to test whether monetary policy conforms to the simple rules that have been recommended in the literature. While a Taylor rule with the standard parameters used in the US describes New Zealand monetary policy quite well, the Reserve Bank has focused more strongly on price stability, as required by its Policy Targets Agreements. Monetary policy is better described by targeting the future inflation rate as forecast by the Bank than by current inflation as in the Taylor rule. However, restricting the description of policy to the information available at the time of setting policy does not result in a much-improved explanation. There is a ‘smoothing’ element to the Bank’s policy rather than an immediate response to every small fluctuation. There is also insufficient evidence to suggest that monetary policy has been asymmetric in treating upside inflationary pressures differently from those towards deflation

Keywords : central banks; inflation-targeting; monetary policy rules
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Multinational Finance Journal, 2001, vol. 5, no. 3, pp. 201-224 |
Asjeet S. Lamba , The University of Melbourne, Australia    Corresponding Author
Isaac Otchere , The University of Melbourne, Australia

This paper provides the first comprehensive analysis of the dynamic relationships between the South African and major world equity markets during May 1988 - May 2000. Using a multivariate cointegration framework and vector error-correction modeling the results indicate that there is a long-run relationship between the South African market and major developed markets. Over the full sample period, the US, Canada and Australia exert the most influence on South Africa, while the influence of Japan is minimal. The subperiod analysis shows that, during the Apartheid period, a long-run equilibrium relationship between South Africa and the major developed markets did not exist. In contrast, during the post-Apartheid period, the long-run relationship has become strong and statistically significant for all the major developed markets, except Japan. Overall, the results imply that South Africa is now much more economically and financially integrated with major developed markets, and that the removal of Apartheid has played a significant role in this process

Keywords : co-integration; emerging markets; South Africa; vector errorcorrection model
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Multinational Finance Journal, 2001, vol. 5, no. 4, pp. 225-257 |
Hossein Asgharian , Lund University, Sweden    Corresponding Author
Björn Hansson , Lund University, Sweden

This article seeks to find factors that can account for the determinants of common variations in returns for a small open economy where the Swedish stock market serves as an example. The importance of the candidate factors is first analyzed by looking at the standard deviation of their mimicking portfolio returns, while their performance is evaluated from a risk management viewpoint. The results of the volatility analysis verify that the market, as represented by both the world market portfolio and the Swedish home market portfolio, is a crucial factor and most of the macro factors seem to be redundant. The results of the risk management exercise show that the market factor and the portfolios mimicking size and book-to-market ratio are important

Keywords : multifactor models; open economy; return covariance; risk management
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Multinational Finance Journal, 2001, vol. 5, no. 4, pp. 259-301 |
Cathy S. Goldberg , University of San Francisco, U.S.A.    Corresponding Author
Francisco A. Delgado , UBS Warburg, U.S.A.

This article presents an analysis of financial integration for emerging financial markets. The results indicate that for the sample of countries examined, Argentina, Chile, Mexico and Thailand’s stock markets are financially integrated. Conclusions are reached by first identifying endogeonous breaks in multiple stock return series and then constructing confidence intervals around these break dates. Further support is provided that identified breaks are due to integration by performing statistical analyses on the return series pre and post break. In general, the stocks in integrated countries become more correlated with world and industry indexes. Mean returns for these stocks decrease and become more aligned with the mean returns of their respective industry indexes. In cases where we do not find supporting evidence for financial integration, the break dates correspond to currency crises or other events that caused a shift in the return series

Keywords : emerging markets; financial integration; structural break tests
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