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The International Journal of Banking and Finance (IJBF) Volume 12, No. 1, 2016

 
 
An Asian Study of the Monetary and Banking Liquidity Impact on Share Prices
Tin-fah Chungand M. Ariff
Taylor’s University, Malaysia and University Putra Malaysia
 
Abstract Ɩ Full Text
Following Friedman’s hypothesis that credit expansion will follow a monetary and liquidity binge, we used data from 1968-2012 in Asia (Japan, Korea, China and India) to explore this hypothesis. Our results from applying single and cointegration equations provided empirical support to the above hypothesis. This liquidity binge following a monetary impact on share prices was tested in four major Asian economies. As per the theory’s prediction, monetary changes led to a positive banking liquidity effect, based on lengthy quarterly equations using the dynamic OLS method. We also showed that banking liquidity changes have a significant positive effect on share prices, after controlling for the effects of earning changes, regime changes and the global financial crisis. These findings, obtained after solutions to serious econometric issues in existing studies, appear to provide a clear verification of theory on the monetary effect on banking liquidity and banking liquidity’s effect on share prices.
 
Keywords: Money supply, Liquidity, Share prices, Causality, Dynamic ordinary least squares, Cointegration, Structural break.
JEL Classification: E41, E44
 

 
Property Structure of Stock Exchanges and Market Quality: A Study of the Bovespa Demutualisation
Carlos Tadao Kawamto1, James Terence Coulter Wright2
University of São Paulo
 
Abstract Ɩ Full Text
This article investigates the hypothesis that the property structure of organisations is related to the quality of the products and services that they supply. The analysis is accomplished through the study of the Brazilian stock exchange (Bovespa), which modified its property structure through demutualisation and capital opening at the end of 2007. According to the New Institutional Economics (NIE), the modification of property structures could result either in the deterioration of quality, due the need of for-profit firms to increase profits and cut costs, or improvement in quality, due to increases in efficiency. This question is evaluated through Lumsdaine and Papell’s (1997) endogenous two structural break test applied on the average bid-ask spread of all stocks traded on the Bovespa. The result indicates that there is a significant break in the series trend during the demutualisation process, suggesting that the property structure change led to an improvement in market quality.
 
Keywords: New Institutional Economics, Not-For-Profit Organisations, Stock Exchange, Demutualisation, Bid-Ask Spread
JEL codes: E11; G28; G32
 

 
Real Exchange Rate Misalignment and Trade Flows in Nigeria (1960-2013)
Ibrahim W.
Department of Economics, Al-Hikmah University, Ilorin
 
Abstract Ɩ Full Text
The paper examined the effects of real exchange rate misalignment on trade flows in Nigeria between the year 1960 and 2013. Trade flows were divided into export flow, import and trade balance. The paper employed the behavioural equilibrium exchange rate (BEER) approach to obtain the equilibrium real exchange rate for Nigeria and a single equation co-integration approach to determine the effect of exchange rate misalignment on trade flows. It was observed that Nigeria’s real effective exchange rate appreciated in most periods between 1960 and 1985 and depreciated in most periods between 1986 and 2013. The result of the study further indicates that real exchange misalignment has no significant effect on the volume of export but it has a significant depreciating effect on import and trade balance in the country. The study recommends a flexible exchange rate system to reduce real exchange rate misalignment and diversified export products to enable volume export responds to real exchange rate movements in the country.
 
Keywords: Real exchange rate, trade flows, export, import, misalignment DOLS.
JEL Clasification: F31
 

 
Impact of Financial Crisis on the Profitability of Capital Structure Arbitrage in Australia
Jiri Svec
Nicholas Reeves
The University of Sydney
 
Abstract Ɩ Full Text
We evaluate the performance of a convergence style capital structure arbitrage trading strategy using Australian CDS spreads estimated by the Credit Grades model. By comparing a number of volatility inputs, we find that although option-implied volatility inputs produce biased spreads compared to historical measures, their correlation with medium-term changes in market spreads generate significantly more profitable trades during the financial crisis, even after the inclusion of transaction costs. While the strategy is risky at both the individual obligor and the iTraxx Index level, combining positions into an equally-weighted index of arbitrage trades reduces risk.

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