Stock Markets

These South Asian countries have close economic similarities and financial ties. This study has importance for the investors, banks and financial institutions because terrorism increases business risk and uncertainty that weaken the confidence of the investors and creates threat of loss of the investments for the banks and financial institutions. It also has direct and indirect impact on the financial institutions and on the stock markets. The occurrence of terrorism events in South Asia is relatively high that can increase the fear of investors and disturbs long run investment decisions. The results of this study show that terrorism attacks have negative impact on stock markets of South Asia and terrorism attacks in one country and have spillover effect on stock market returns of the other countries. So, if a terrorist attack take place in a country, investors do not invest in the host country, instead, they invest in the other countries of the region for yielding the effect of spillover.

The relationship between stock prices and real economic activity is circular. On the one hand, stock prices depend on a company’s performance and its growth prospects so that to the degree that a company’s performance improves and the rate of return increases, stock prices rise in turn. On the other hand, stock prices should reflect the present discounted value of expected future dividends or expected future growth. From this perspective, stock prices serve as a leading indicator of future changes in real economic activity. Generally, there are three main channels whereby stock prices can affect real economic activity: i) the wealth effect: under the life cycle/permanent income, higher stock prices and increased wealth in stocks lead investors to increase their consumption. This increase in consumption will be more significant in countries where the stock ownership base is large; ii) cost of capital: with stock prices increasing, the cost of new capital relative to existing capital decreases, more companies go public and raise funds for investment through public offerings. In addition, a good performance on the stock market might attract foreign capital, which would allow interest rates to go down (ceteris paribus); and iii) the confidence effect/expectation effect: a highly performing stock market might improve overall expectations, which might induce economic growth through more investment as part of a positive feedback effect. Moreover, stock prices signal faster growth of companies and as a result a possible growth of future real individuals’ income might also induce more consumption (Morck et al, 1990).Although these factors/channels are hard to quantify, it is important to accurately assess the strength of the link between stock markets and real economic activity.

In Tables 3 and 4 we present a pairwise comparison of the jump intensities across the stock markets under research. Tables 3 and 4 show the results of the Wilcoxon test on jump intensities obtained based on Method 1 and 2, respectively. Each column in each table is divided into two sub-columns: in the left sub-column we present the results from before the European debt crisis in May 2010 while the right sub-column shows the results afterwards. Individual entries in each table show the extent of intensity in price jumps between pairs of stock markets that are labeled by the names of the cities where stock exchanges operate. An entry (value of the z-statistics) in each table should be read in the following way: a positive (negative) number shows that price jump intensity on the market in a given row is larger (smaller) than the price jump intensity on the market in a given column. Alternatively, a negative number can be interpreted as a stock market in a given column exhibiting greater price jump intensity than a stock market in a given row. The larger the coefficient, the larger is the difference in jump intensity between the two markets. This interpretation can be illustrated by a specific example: in the left sub-column of Table 3 the Frankfurt-London pairwise result is -1.77, which means that Frankfurt stock exchange exhibits smaller intensity in jumps of its index (DAX) than does London stock exchange; however, the difference in jump intensities on both markets is not very large.

The extent of the linkage between financial markets improves access to capital markets. Strong linkage reduces the insulation of the emerging stock markets from external shocks, hence limiting the scope for independent monetary policy (Li, 2007). From the perspective of the global investors, weak stock market linkage in the form of less than perfect correlation between their returns offers potential gains from international portfolio diversification, while strong market linkage or co-movement in returns eliminates the potential benefits of diversification. The present study tries to analyze volatility spill over among Indian stock markets using multivariate GARCH models.

However, the experience of non-Islamic countries in the real world does not quite square with this textbook account. In leading industrial countries such as the United Kingdom and Germany, most large firms listed on the stock markets in these countries do not raise new equity capital at all. Instead, they rely on their retained profits for financing almost all of their investment needs. The few, usually small, companies that do go to the stock markets do not use the new capital for investment purposes. Rather, they employ it as a means of acquiring liquidity in the early stages of their development. The Kay Review concludes that the main role of equity markets is not to monitor allocation of capital between companies, but instead to oversee its allocation within companies. The Review goes on to suggest that “ promoting good governance and stewardship is….the central rather than an incidental function of the UK equity mar kets ” (10). Similarly, there are relatively few initial public offerings (IPOs) in continental European countries such as Germany and Italy. This suggests that the role of public equity markets in these countries is also likely to be small (Pagano, Panetta, and Zingales 1998).

Various studies have employed various techniques for investigating serial correlation and market efficiency levels in emerging markets. Lots of studies used cointegration test, Lo & MacKinlay (1988) variance ratio test, multiple variance ratio tests of Chow & Denning (1993), runs test for testing serial correlation. ADF unit root test and (PP) test for finding out weak-form efficiency and GARCH (1,1) for determining time varying variance. Levels of efficiency and existence or non-existence of random walk is highly sensitive to the methodology used (Areal & Armada, 2002). For example, Istanbul stock exchange was found weak-form efficient by applying variance ratio test while found inefficient when unit root test was applied (Kapusuzoglu, 2013). Similarly, in another study rejection of random walk hypothesis was concluded for African emerging markets by employing variance ratio test (Smith et al., 2002), while presence of weak- form efficiency was noticed in the same era in African markets after using partial auto- correlation function and Box-Pierce Q-statistics (Magnusson & Wydick, 2002). Rejection of random walk in major Asian emerging stock markets was observed when variance ratio test of Lo & Mackinlay (1988) was used (Huang, 1995) and runs test suggested weak-form efficiency in most of the emerging markets (Karemera et al., 1999). Conversely, some Latin American emerging markets when tested with variance ratio test, serial correlation was found. And the same countries were found weak-form efficient for the same period when runs test was applied (Urrutia, 1995). Kim & Shamsuddin (2008) preferred multiple variance ratio test based on wild bootstrap over conventional Chow-Denning variance test, when the sample size is not very big. Mobarak & Keasey (2000) found Dhaka stock exchange inefficient by applying autocorrelation test, runs test and autoregression test, while Islam & Khaled (2005) applied heteroscedasticity- robust Box-Pierce test which reversed the results.

There have been voluminous studies investigating the stock markets integration in both developed and developing markets worldwide as it has implication on both international portfolio diversification and financial stability of a country. When several stock markets move together and have high correlations, this indicates fewer benefits from portfolio diversification across the markets. The financial markets become more integrated due to the financial globalization, removal of investment barriers, financial innovation and technological advancement (Karim and Hoe, 2012). Francis et al. (2002) and Yang et al. (2003) argued that the financial markets have become more integrated after the Asian financial crisis. On the other hand, Abdul Majid and Kassim (2009) find that the stock markets have shown greater degree of integration during the US subprime crisis. Interestingly, Karim et al. (2010) provide evidence that the Islamic stock markets are not integrated in both pre- and during subprime crisis thus offer a potential benefits for portfolio diversification.

This paper examines the market efficiency in the ASEAN-8 nations that include Cambodia, Indonesia, Lao, Malaysia, Philippines, Singapore, Thailand and Vietnam. The ADF unit root test rejects the random walk hypothesis in all the ASEAN markets under study. We have used the individual variance ratio tests which are considered to be more powerful than the unit root tests. We observe that Lo and MacKinlay (1988) variance ratio test and Choi (1999) Automatic variance ratio test give similar results in which out of the 8 ASEAN nations only 3 nations (i.e. Cambodia, Lao and Singapore) stock markets are found to be weak form efficient. Durlauf (1991) spectral shape test, Andrews and Ploberger (1996) Average exponential test also confirms that the 3 ASEAN nations are weak form efficient like the results of Choi (1999) test. In Wright (2000) rank and sign based test, we have found that all the ASEAN nations are inefficient, except Singapore.

This paper investigates which US stock price index is strongly influenced by the Japanese stock markets. Our empirical tests as to the time-varying correlations derived from a multivariate generalized autoregressive conditional heteroskedasticity (MGARCH) model reveal the following evidence. First, (1) we clarify that all US stock returns of the Dow Jones, S&P 500, and NASDAQ Composite indices are statistically significantly positively influenced by the returns of TOPIX and the Nikkei 225. Moreover, we also find that (2) the changes of the NASDAQ-S&P 500 (NS) ratio are statistically significantly positively influenced by the returns of TOPIX and the Nikkei 225 while the changes of the Dow Jones-S&P 500 (DS) ratio and the Dow Jones-NASDAQ (DN) ratio are statistically significantly negatively influenced by the returns of TOPIX and the Nikkei 225. These relations between the returns of TOPIX and the Nikkei 225 and the US stock price index ratios are clearly shown in all three sample periods employed in this paper. Hence our results suggest that, in our analyzing periods, (3) the NASDAQ index is most strongly positively connected with the Japanese stock markets.

The major steps taken to reform the stock markets included the setting up of the National Stock Exchange (NSE), the dematerialisation of the securities, the banning of the badla transaction and the introduction of derivative trading (options and futures for both index and stock). The stock market in India has seen rapid transformation as a consequence of these reforms, which are still being carried out on a continuous basis. Further, it has become an important avenue for investment by the Foreign Institutional Investors (FIIs) who were allowed to enter India since 1993. The number of FIIs registered with the Securities and Exchange Board of India (SEBI) has increased from four hundred eighty nine (489) as at 1 January 2003 to one thousand seven hundred thirty (1,730) as at 21 September 2010. 1

problem of long term investment blocking their savings for long periods. This is because these markets provide such assets which can be sold easily and inexpensively by the investor. Also the firms can have permanent access to capital raised through equity issues. Also in well-developed stock markets, liquidity risk is low due to which investors do not hesitate to invest in long term promising projects. In this case, the investors can sell their stocks at any time and with minimal effect on actual investments. This enables the retention of capital within firms which will not get prematurely removed to meet short term liquidity needs. Beck and Levine (2004) was an improvement of the study of Levine and Zervos (1998) wherein the moving average panel data of 40 countries over 5 years while controlling for many other growth determinants, used the generalized method of moments technique to estimate the problem. The study by There are also other studies by Bencivenga et al., (1996) and Levine (1991) which emphasized the importance of stock market liquidity and size for economic growth. Arestis, Demetriades and Luintel (2001) examined the relationship between stock market development and economic growth while controlling for the effects of banks and stock market volatility using the time series method on five developed countries. Their findings were consistent with that of Levine and Zervos’s finding for three countries only. The other two countries showed that bank based financial systems promoted long term growth more than stock markets. Levine (2003) also gave an insight into the ambiguous predictions of the relationship between stock market liquidity and economic growth. He analysed the cross country evidence on the association between total value of stock transactions divided by GDP and the average economic growth rates over the period 1976-1993. The results showed a strong positive relationship between long run economic growth rate and stock market liquidity. The positive relationship was found to hold good even when there are changes in the information used.

We also notices that after the initial government interventions and other major news events, visible as singularity "spikes" in the return series and as high powered vortices in the scalograms, the volatility levels in the Chinese stock markets have been gradually declining, while the skew- ness remains almost stationary, with a slight positive (upward) tilt. In addition, the kurtosis of the Chinese stock markets is increasing because of the increased participation of many hedging noise traders, who trade "around the market mean" and fewer powerful institutional and wealthy investors, which are used to take a few large speculative buy-and-hold positions "away from the market mean." This increase in the leptokurtosis is more pronounced in the more globalized Shen- zhen than in the still very domestic Shanghai stock market, implying that the integration of these two regional Chinese stock markets is still not complete.

Many studies have shown that the world capital markets are becoming more integrated and that major financial markets share increased co-movements (Allen and Macdonald, 1995). The explainable reason for this trend might be the financial deregulation in many emerging countries, and technological developments that provide unlimited speed of information transmission, as well as the expansion of multinational enterprises. Such globalisation phenomenon in financial world have improved ties between national stock markets and increased the co-movement behaviours of international stock markets. This co-movement of behaviour draws attention from academic community, and is especially important to gain benefit through international diversification. In recent decades, lots of studies focus on studying the correlations among international stock markets in order to gain idea of beneficial effects of international diversification strategies.

This study investigates daily stock market anomalies in the African stock markets, using two most representative stock index ETFs, each over at least eleven-year time period spanning from pre-financial crisis era to ten years into the financial crisis. This research attempts to test the presence of the weekend effect on stock returns in the African stock exchanges during the financial crisis. The results indicate a significant negative effect on Mondays. Our results shed some light on the degree of market efficiency in one of the major emerging capital markets in the world.

Stock markets are hard to predict. Driven by supply and demand, macroeconomic changes such as inflation or political instability can affect whole markets, while local events like company financial announcements or product releases impact individual stocks. Traders also look for signals in the price development that may indicate future prices. Because some trading is based on these indicators, price movement by itself can also trigger trading activity, causing further price adjustments. Investors and traders should ideally consider all these factors when evaluating a stock, however market participants are often partitioned into two groups: Traders that make decisions based on news, facts and numbers are known as fundamental analysts, while those who look for signals in price history are using technical analysis.

There are good reasons for believing that stock markets in CEE might be increasingly integrated with the developed stock markets of Western Europe and, if these linkages do exist, they are likely to be strongest between those countries from CEE which have been granted EU Membership, especially with those that have adopted the euro (the Czech Republic, Estonia, Hungary, Poland, Latvia, Lithuania, the Slovak Republic, Slovenia, Bulgaria and Romania) and Frankfurt and London, the latter being the dominant exchanges in the area. As full members of the EU, these CEE countries are establishing stronger economic ties with other EU Members through trade, cross-border investments and policy coordination. The Maastricht Criteria establishes rules for entry into EMU which are designed to promote economic convergence. Studies by Asprem (1989), Bodurtha et al (1989) and Canonova and de Nicolo (1995) have shown the relevance of common factors in international stock market linkages. Nasseh and Strauss (2000) demonstrate that stock prices in European countries are determined by domestic economic variables and by German economic variables for the period 1962-1995. Fratzscher (2002) has shown that increasing integration in European equity markets in the 1990s was due mainly to the drive towards EMU.

This paper presents the transformation of former socialist countries in the current market functioning, which has contributed to the development of stock markets and led to the increase of business profitability, the growth of privatization, the growth of initial public offerings and other positive changes. At the time when eight former communist countries became members of the European Union, there was restructuring and privatization of banks that started in the 90’s and brought modern and healthy banking system in these countries. New systems are integrated into the European financial environment through ownership majority in many banks, which are found in the hands of financial groups with seats in the European Union.

In stock markets, each company can be indicated by its stock price. Therefore, the interactions between stocks depict a complex network. In this paper, the stock networks are constructed based on the idea and definitions proposed at the first by Mantegna (1999). Considering time series derived by stock prices in the specific time window for each company, stock market can be modeled by a graph in which the vertices correspond to companies’ stocks and the edges indicate the Pearson’s correlation coefficient between two corresponding time series. Since the rate of changes in the prices are important and not just the absolute value of the variables, the logarithmic return of stock of company X at time t is defined by the formula (1), in which p X (t) denotes the

The effects of increasing the integration and development of financial markets in emerging economies on their volatility and efficiency have been investigated and documented. However, we have little evidence of whether such effects a) express themselves over time under differing economic conditions or b) are exhibited differently over the short versus the long term. Different segments of investors in these markets behave differently (e.g. Kim and Wei, 2002), depending on their risk appetite and investment time horizons, and decomposing them therefore makes our analysis of interest to regulators. There has also been debate about the channels through which emerging stock markets exhibit changes in efficiency and volatility over time (Hull and McGroarty, 2014). Although several longitudinal studies have analysed the efficiency and volatility of emerging equity markets, very few have attempted to study the contemporaneous effects of market development and exogenous shocks on these two characteristics of the market together. It is also interesting to study changes in the volatility and efficiency of equity markets over time, since they reflect changes in the composition of market participants, institutions, and business conditions over time (Lim and Brooks, 2011).

La Porta and others (1999) provide formal support for the importance of minority rights protection by using indicators of the quality of shareholder protection as written in laws. They show that the quality of shareholder protection is correlated with the capitalization and liquidity of stock markets in 49 countries around the world. Pistor (2000) extends the analysis by constructing identical indexes for transition economies. The results of both studies are presented in Table 2. The indicators of minority rights protection show that, starting from no legal basis whatsoever, many transition economies have made significant strides in improving—at least on the books—the legal environment for investors. All but six transition economies (Azerbaijan, Croatia, Kyrgyz Republic, FYR Macedonia, Slovak Republic, and Ukraine) have better investor protection laws than Egypt, Germany, Mexico, and Turkey (see Table 2). The relatively high scores for Eastern European countries are perhaps not surprising because these countries have started harmonizing their stock market laws with those of the European Union. But the scores are surprising for the countries of the former Soviet Union. 2