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Vol. 7, Number 2, August 2010

 
Influence of Transaction Costs on Foreign Exchange Option Contracts: Intra-Daily Tests
Ariful Hoque, Meher Manzur, and Geoffrey Poitras
University of Southern Queensland, Curtin Business
School, and Simon Fraser University
 
Abstract Ɩ Full Text
This paper tests the impact of transaction cost specication on deviations from lower boundary and put-call parity properties. Using PHLX traded foreign exchange options, prices for puts and calls are matched to the nearest five minutes. The results indicate how boundaries on the arbitrage profit function determined by alternative measures of transactions costs can impact the interpretation of deviations from distribution free properties of options such as put-call parity.
 
Keywords: Put-call parity; Market efficiency; Arbitrage; European options
JEL classification: G13, G15, F31
 

 
Market Meltdown and the Propagation Mechanism of Contagion
Dilip K. Ghosh and Dipasri Ghosh
American University Cairo and Rutgers University,
and California State University (Fullerton)
 
Abstract Ɩ Full Text
World economy came on a tailspin because of market meltdown and the propagation of contagion triggered by recession, starting mostly from the US economy. This work highlights the grim developments in the financial sectors and the real sectors world-wide, and then an attempt is made to highlight the propagation mechanism of infective contagion. Theoretical structures of such interconnected are showcased through various analytical vehicles. The indices of sensitivities and dispersions are measured in mathematical terms, and in that sense a new analytical framework is presented. However, empirical evaluations of the propagation mechanism remain unfinished because of the dearth of data
 
Keywords: Market Meltdown, Contagion, Subprime Loans, Troubled Asset Relief Program (TARP), Securitization
JEL Classification: G1, G2
 

 
Market Liberalization and Trading in Korea
Lloyd P. Blenman, Dar-Hsin Chen and Chun-Da Chen
University of North Carolina, National Chiao-
Tung University, Taiwan, and Dah-Yeh University,
Taiwan
 
Abstract Ɩ Full Text
This paper reports on the trading behavior of major participants, investment trust companies, banks, and foreigners in South Korea in the period after the currency markets were liberalized and the limits on foreign investments were lifted. It was found that trading in the spot currency market was impacted by volatility in the daily Won/USD rates. As the daily unexpected range expanded (narrowed), daily spot trading volume and volatility increased (decreased). This is evidence of asymmetric trading behavior on the part of market participants. It was found that only investment trust companies adjusted their spot positions by trading USD futures as a response to unexpected volatility changes of the exchange rate. There is evidence of volatility clustering of the trading volatilities across Korean markets and trader types and no signs of market instability was found.
 
 
Keywords: South Korea, Market liberalization, Trading behavior, Currency, Multivariate GARCH model
JEL classification: F21, F31, G14
 

 
Patterns of Debt Use in Small Businesses: A Non-Parametric Analysis
Atreya Chakraborty and Rajiv Mallick
University of Massachusetts-Boston and Amundi
Investment Solutions Americas LLC, United States
 
Abstract Ɩ Full Text
This paper uses non-parametric techniques to examine patterns of debt use by small firms and how such patterns differ across firm categories. The methodological goal is to use the richness of the firm level data and allow convincing presentations with minimum of assumptions. The procedures used provide easily comprehendible graphical descriptions of the data. The procedures augment what can be discerned from descriptive statistics by accounting for differential weights and allowing for clustering that is a native feature of cross-sectional data. We also investigate how firms could benefit if credit availability improves. Though a model-based analysis would be required to provide a detailed analysis, our analysis suggests that greater credit availability will benefit all firms. Firms with low levels of equity will be better off as their credit constraints will be less binding, while firms with high levels of equity will benefit from acquiring more debt.
 
Keywords: Debt holding, Small business, Non-parametric, Credit constrained
JEL classification: G21 and C14

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