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Emerging Markets and the Global Economy

Book Description

Emerging Markets and the Global Economy investigates analytical techniques suited to emerging market economies, which are typically prone to policy shocks. Despite the large body of emerging market finance literature, their underlying dynamics and interactions with other economies remain challenging and mysterious because standard financial models measure them imprecisely.

Describing the linkages between emerging and developed markets, this collection systematically explores several crucial issues in asset valuation and risk management. Contributors present new theoretical constructions and empirical methods for handling cross-country volatility and sudden regime shifts. Usually attractive for investors because of the superior growth they can deliver, emerging markets can have a low correlation with developed markets. This collection advances your knowledge about their inherent characteristics.

Foreword by Campbell R. Harvey



  • Concentrates on post-crisis roles of emerging markets in the global economy
  • Reports on key theoretical and technical developments in emerging financial markets
  • Forecasts future developments in linkages among developed and emerging economies

Table of Contents

  1. Cover image
  2. Title page
  3. Table of Contents
  4. Copyright
  5. Foreword
  6. Acknowledgments
  7. About the Editors
  8. List of Contributors
  9. Author Biographies
  10. Part 1: COUNTRY-SPECIFIC EXPERIENCES
    1. Chapter 1. Robust Measures of Hybrid Emerging Market Mutual Funds Performance
      1. Abstract
      2. Acknowledgment
      3. 1 Introduction
      4. 2 Stochastic Discount Factors and Benchmark Models
      5. 3 Performance Evaluation of Managed Portfolios
      6. 4 Econometric Methodology and Tests
      7. 5 Conclusion
      8. References
    2. Chapter 2. Emerging Countries Sovereign Rating Adjustment using Market Information: Impact on Financial Institutions’ Investment Decisions
      1. Abstract
      2. 1 Introduction
      3. 2 The δ-Rating Methodology
      4. 3 Rating Evaluation: Carrying Out the Methodology
      5. 4 Discussion and Conclusion
      6. References
    3. Chapter 3. Emerging Markets Banks Performance Evidence from China’s Banks in Hong Kong
      1. Abstract
      2. 1 Introduction
      3. 2 Foreign Banks in Hong Kong
      4. 3 Hypothesis Testing
      5. 4 Data and Methodology
      6. 5 Empirical Results
      7. 6 Conclusion
      8. References
    4. Chapter 4. Determinants of the Real Rate of Return: Evidence from Cross-Country Panel Data
      1. Abstract
      2. 1 Introduction
      3. 2 The Data
      4. 3 The Methodology
      5. 4 Determinants of Asset Returns: Some Basic Results
      6. 5 Determinants of Asset Returns: Some Refinements
      7. 6 Conclusions
      8. Appendix List of Countries
      9. References
    5. Chapter 5. Understanding the Relationship Between Liquidity and Inflation in the Post Crisis Period in India: from Bank Dealers’ Perspectives
      1. Abstract
      2. 1 Introduction
      3. 2 The Scenario
      4. 3 The Existing Literature on Economic Games
      5. 4 Features of the Game in Decision Making of a Dealer in the Government Security Desk
      6. 5 Forecasting Liquidity
      7. 6 Decision Making of a Dealer in the Equity Desk
      8. 7 Conclusion
      9. Appendix
      10. References
    6. Chapter 6. Demographic Transition and Savings Behavior in Mauritius
      1. Abstract
      2. 1 Introduction
      3. 2 Literature Survey
      4. 3 Savings Trends
      5. 4 Methodology
      6. 5 Findings—Macroeconomic Modeling
      7. 6 Findings—Microeconomic Modeling
      8. 7 Conclusion
      9. References
    7. Chapter 7. An Investigation of the Deviation from the Market Efficiency and its Implications for Capital Market Development: The DSE Evidence
      1. Abstract
      2. Acknowledgments
      3. 1 Introduction
      4. 2 Background of DSE
      5. 3 Testing Methodologies
      6. 4 Data, Econometric Packages, and Descriptive Statistics
      7. 5 Results and Analysis
      8. 6 Conclusion and Policy Implications
      9. References
    8. Chapter 8. An Econometric Analysis of the Impact of Oil Prices on Stock Markets in Gulf Cooperation Countries
      1. Abstract
      2. Acknowledgment
      3. 1 Introduction
      4. 2 GCC Stock Markets and Oil
      5. 3 Transmission Channels
      6. 4 Empirical Investigation
      7. 5 Policy Discussion
      8. 6 Conclusion
      9. Appendix 1—Individual Stationarity Tests for Series (in Logarithm)
      10. References
    9. Chapter 9. Trading Intensity and Informed Trading in the Tunis Stock Exchange
      1. Abstract
      2. Acknowledgments
      3. 1 Introduction
      4. 2 Institutional Features of the Tunis Stock Exchange
      5. 3 Econometric Models
      6. 4 Empirical Analysis
      7. 5 Conclusion
      8. References
    10. Chapter 10. Energy Sector Companies of the BRICS: Systematic and Specific Financial Risks and Value at Risk
      1. Abstract
      2. Acknowledgment
      3. 1 Introduction
      4. 2 Literature Review
      5. 3 The Role of Gas and Oil in the BRICS
      6. 4 Data
      7. 5 Econometric Models
      8. 6 Empirical Results
      9. 7 Conclusions and Future Research
      10. Appendix
      11. References
    11. Chapter 11. Developed and Emerging Equity Market Tail Risk: Is it Constant?
      1. Abstract
      2. Acknowledgment
      3. 1 Introduction
      4. 2 Testing Structural Change in Tail Behavior: Theory
      5. 3 Monte Carlo Experiments
      6. 4 Empirical Application
      7. 5 Conclusions
      8. Appendix A Calibration of GARCH(1, 1) Parameters
      9. Appendix B Derivations of Second Order Expansion Parameters
      10. References
    12. Chapter 12. Measuring Systemic Risk in Emerging Markets Using CoVaR
      1. Abstract
      2. Acknowledgments
      3. 1 Introduction
      4. 2 Review of the Literature
      5. 3 Econometric Methodology
      6. 4 Data and Empirical Results
      7. 5 Summary and Concluding Remarks
      8. References
    13. Chapter 13. An Empirical Study on Mutual Funds Performance Persistence in China
      1. Abstract
      2. 1 Introduction
      3. 2 Literature Review
      4. 3 Methodology
      5. 4 Research Findings
      6. 5 Conclusions
      7. References
    14. Chapter 14. Cultural Behavioral Finance in Emerging Markets
      1. Abstract
      2. 1 Introduction
      3. 2 Culture and Financial Decision Making
      4. 3 Behavioral Finance in Emerging Markets: A Cultural Perspective
      5. 4 The Future of Cultural Behavioral Finance Research in Emerging Markets
      6. References
    15. Chapter 15. Early Warning System for Financial Crisis: Statistical Classification Approach
      1. Abstract
      2. Acknowledgments
      3. 1 Introduction
      4. 2 Procedure Description
      5. 3 Oracle Classifier
      6. 4 Lag-l Forecasting Classifier
      7. 5 Linking Various Classifiers
      8. 6 Empirical Example and Experiment
      9. 7 Conclusion
      10. References
    16. Chapter 16. Comovements and Volatility Spillovers Between Oil Prices and Stock Markets: Further Evidence for Oil-Exporting and Oil-Importing Countries
      1. Abstract
      2. 1 Introduction
      3. 2 Data and Methodology
      4. 3 Empirical Results
      5. 4 Conclusion
      6. References
    17. Chapter 17. Collateral in Emerging Economies
      1. Abstract
      2. 1 Introduction
      3. 2 Literature on Collateral
      4. 3 Empirical Analysis
      5. 4 Robustness Checks
      6. 5 Policy Implication
      7. 6 Conclusions
      8. References
    18. Chapter 18. Tactical Risk Analysis in Emerging Markets in the Wake of the Credit Crunch and Ensuing Sub-prime Financial Crisis
      1. Abstract
      2. Acknowledgment
      3. 1 Introduction
      4. 2 Related Literature Review and Purpose of Present Study
      5. 3 Methodology and Research Design
      6. 4 Results and Discussion of Findings
      7. 5 Discussion and Conclusion
      8. Appendix A Derivation of Liquidity-Adjusted Value-at-Risk (LVaR) Mathematical Structure During the Close-Out (Unwinding) Period
      9. References
  11. Part 2: DYNAMIC INTERACTIONS WITH THE GLOBAL ECONOMY
    1. Chapter 19. Volatility and Spillover Effects of Central and Eastern Europe: Impact of EU Enlargement
      1. Abstract
      2. 1 Introduction
      3. 2 Literature Review
      4. 3 Data and Summary Statistics
      5. 4 Multivariate GARCH Models
      6. 5 Empirical Results
      7. 6 Conclusion
      8. References
    2. Chapter 20. Price Jump Behavior During Financial Distress: Intuition, Analysis, and a Regulatory Perspective
      1. Abstract
      2. 1 Introduction
      3. 2 Price Jumps and Financial Crisis
      4. 3 Methodology
      5. 4 Data Description
      6. 5 Results
      7. 6 Regulatory Consequences
      8. 7 Conclusion
      9. References
    3. Chapter 21. Are Emerging Markets Exposed to Contagion from the United States: Evidence from Stock and Sovereign Bond Markets
      1. Abstract
      2. 1 Introduction
      3. 2 Some Theoretical Underpinnings
      4. 3 Some Amplifications on Recent Crisis
      5. 4 Methodology
      6. 5 Data and Descriptive Statistics
      7. 6 Empirical Results
      8. 7 Implications and Conclusion
      9. References
    4. Chapter 22. Assessing the Effects of the Global Financial Crisis on the East Asian Equity Markets
      1. Abstract
      2. 1 Introduction
      3. 2 Literature Review
      4. 3 Data and Methodology
      5. 4 Empirical Results
      6. 5 Conclusion
      7. References
    5. Chapter 23. Contagion versus Interdependence: The Case of the BRIC Countries During the Subprime Crises
      1. Abstract
      2. 1 Introduction
      3. 2 BRIC Countries
      4. 3 A Brief Review of Literature
      5. 4 The Empirical Methodology
      6. 5 Empiricals Results
      7. 6 Interdependence versus Contagion
      8. 7 Summary and Implications
      9. References
    6. Chapter 24. On the Importance of Trend Gaps in Assessing Equity Market Correlations
      1. Abstract
      2. 1 Introduction
      3. 2 Measuring Market Correlation
      4. 3 Defining Stock Market Trends
      5. 4 Data and Descriptive Statistics
      6. 5 Results
      7. 6 Conclusion
      8. References
    7. Chapter 25. Stock Market Co-movement in ASEAN and China
      1. Abstract
      2. 1 Introduction
      3. 2 Theoretical Underpinnings of Stock Market Linkages
      4. 3 Existing Literature on Stock Market Linkages
      5. 4 Overview of the Markets and Bilateral Trade and Investment
      6. 5 Data
      7. 6 Empirical Specification and Methodology
      8. 7 Results
      9. 8 Conclusion
      10. References
    8. Chapter 26. Stock and Bond Markets Co-movements in Selected MENA Countries: A Dynamic Coherence Function Approach
      1. Abstract
      2. 1 Introduction
      3. 2 Related Literature
      4. 3 Empirical Analysis and Data
      5. 4 Results and Discussions
      6. 5 Conclusion
      7. Appendix
      8. References
    9. Chapter 27. Equity Market Comovements Among Selected Emerging Countries from Long- and Short-Run Perspectives
      1. Abstract
      2. 1 Introduction
      3. 2 Integration of Equity Markets
      4. 3 Empirical Methods
      5. 4 Data and Results
      6. 5 Conclusion
      7. References
    10. Chapter 28. Stock Market Volatility and Contagion Effects in the Financial Crisis: The Case of South-Eastern Europe
      1. Abstract
      2. Acknowledgment
      3. 1 Introduction
      4. 2 Recent Economic Developments in the SEE Countries
      5. 3 SEE Stock Market Growth and Prospects
      6. 4 An Empirical Analysis of the SEE Stock Markets
      7. 5 Conclusions
      8. References
    11. Chapter 29. Emerging Market Stocks in Global Portfolios: A Hedging Approach
      1. Abstract
      2. 1 Introduction
      3. 2 The Available Evidence
      4. 3 Methodology
      5. 4 An Informal Examination of the Data
      6. 5 Empirical Results
      7. 6 Robustness Test 1: The Conventional Mean-Variance Approach
      8. 7 Robustness Test 2: Alternative Estimates of the Hedge Ratio
      9. 8 Conclusion
      10. References
    12. Chapter 30. The Behavior of International Stock Market Excess Returns in an Increasingly Integrated World
      1. Abstract
      2. 1 Introduction
      3. 2 Summary Statistics and Preliminary Analysis
      4. 3 A Time-Varying Analysis
      5. 4 Conclusion
      6. References
    13. Chapter 31. Determinants of International Financial Integration of GCC Markets
      1. Abstract
      2. 1 Introduction
      3. 2 Literature Review of Financial Integration
      4. 3 Measures of International Financial Integration
      5. 4 Analysis of Determinants of International Financial Integration in GCC
      6. 5 Conclusions and Policy Implications
      7. References
    14. Chapter 32. Asset Return and Volatility Spillovers Between Big Commodity Producing Countries
      1. Abstract
      2. Acknowledgment
      3. 1 Introduction
      4. 2 Selected Literature Review
      5. 3 The Econometric Model
      6. 4 Data
      7. 5 Empirical Results for Returns Spillovers
      8. 6 Empirical Results for Volatility Spillovers
      9. 7 Conclusions
      10. References
    15. Chapter 33. Correlation and Network Structure of International Financial Markets in Times of Crisis
      1. Abstract
      2. Acknowledgments
      3. 1 Introduction
      4. 2 The Data
      5. 3 Random Matrix Theory
      6. 4 Correlation and Volatility of the Market
      7. 5 Network Structure
      8. 6 Conclusion
      9. References
    16. Chapter 34. Financial Development and its Effects on Economic Growth: A Dynamic Analysis
      1. Abstract
      2. Acknowledgment
      3. 1 Introduction
      4. 2 Literature Review
      5. 3 Empirical Analysis of the Financial Development and Economic Growth Nexus
      6. 4 Conclusions
      7. Appendix
      8. References
    17. Chapter 35. Financial Market Integration of ASEAN-5 with China and India
      1. Abstract
      2. 1 Introduction
      3. 2 Literature review
      4. 3 Data and Methodology
      5. 4 Findings
      6. 5 Conclusion
      7. Appendix
      8. References
  12. Index