Journal of Money, Investment and Banking

Issue 30
December, 2015

Asymmetric Effects on Momentum under Uncertainty: Evidence from the International Market

Yujing Gong

In this paper I empirically examine the asymmetric effects on momentum under uncertainty in the international market. Investors respond differently to past winner versus past loser when confronting with Knight Uncertainty, which further creates the asymmetric pattern of momentum strategy. I do find that the price continuation following negative momentum is more pronounced than following positive momentum with increased uncertainty, in terms of fundamental uncertainty related to the value of individual stock or the whole market uncertainty, around the world. Finally, I provide evidence that the smaller the proportion of ambiguity averse investor in a market is, the stronger the momentum asymmetry will be.
JEL Classification: G02, G14, G15.
Keywords: Asymmetric Effects, Information Uncertainty, Ambiguity Aversion.

Monetary Policy in Taiwan: 1992 ~ 2013

Li-Hom Tsung

This paper investigates the monetary policy in Taiwan empirically. The analysis reveals that the monetary targeting adopted by the CBC may not be an effective methodology to implement monetary policy. This is because that there is no stable relationship between M2 growth rate and final goals. Whenever M2 growth rate reaches its target zone, real GDP growth rate and inflation rate may present overshooting or undershooting. On the other hand, even though M2 growth rate turns out to be overshooting or undershooting, real GDP growth rate and inflation may reach its target values. The results also shows that management of M2 aggregate influence nominal term but not real term, and that the change of exchange rate does not have any significant impact on reserve money, M2 aggregate or call rate. Finally, the fine-tuning of monetary policy in Taiwan might be better described as interest rate rule rather than monetary rule. Among the interest rate rule, growth gap has a significant and positive impact on call rate, but inflation gap does not significantly effect on call rate. This phenomenon might be due to the fact that the inflation rate since 1992 fluctuated within a narrow band, and hence did not cause too much concern. Therefore a shifting from monetary targeting to real GDP targeting for monetary policy in Taiwan is recommended.

Keywords: monetary policy, monetary targeting, monetary rule, interest rate rule

A Better Investment Performance in Tourism- Exploring the Consumer Behavior in Tourism

Cheng-Feng Cheng, Ying-Rou Li and Kuan-Ting Wang

This study develops a conceptual framework to extend the knowledge of consumer be-havior in tourism. First of all, this study investigates the impacts of service quality, attraction, and personality on tourist behavior, respectively. In addition, we further explore the interme-diary roles of perceived risk and perceived value on the relationships among service quality, attraction, personality, and customer purchase intention. The results indicate that service quality of tourism has significant effects on tourist's perceived value, perceived risk, and purchase intention. Higher attraction can enhance tourist's perceived value and reduce perceived risk. Tourist's personality only has significant effect on his/her perceived value. Furthermore, both service quality and attraction of tourism can improve tourist's purchase intention through tourist's perceived value and perceived risk. However, Tourist's personality can affect purchase intention only through tourist's perceived value.
Keywords: Service quality, Attraction, Personality, Consumer behaviour

Monetary Shocks, Currency Preferences and Exchange Rate Dynamics in a Small Open Economy

Chung-Fu Lai and Wen-Zhang Lin

Under the framework of the New Open Economy Macroeconomics (NOEM), this paper extends Lane (1997)'s model to investigate monetary shocks on exchange rate dynamics and explored the role of currency preferences in a small open economy. Based on theoretical deviation, we find that apart from the elasticity of marginal utility of real money demand, the currency preference is also an important factor causing exchange rate overshooting, and the greater the local currency preference of an agent is, the higher the possibility of overshooting will be. This is because when the country faces a monetary shock and presences the phenomenon of currency preference, it will respond to exchange rate in greater extent to re-achieve equilibrium of the monetary market, thus causing exchange rate overshooting.
Keywords: Monetary Shocks, Currency Preferences, Exchange Rate Dynamics, New Open Economy Macroeconomics

Assessing the Effects of a Policy Rate Shock on Market Interest Rates: Interest Rate Pass-Through with a FAVAR Model - The Case of Turkey for the Inflation-Targeting Period

Serdar Varlik, Nildag Basak Ceylan and M. Hakan Berument

The purpose of this paper is to investigate the effectiveness of the central bank's policy rate on market interest rates in Turkey for the inflation-targeting period. Empirical evidence suggests that (i) all interest rates respond to a positive policy rate shock positively for all periods and have a hump shape for government debt security yields as well as for domestic-currency- and foreign-currency-denominated time deposit interest rates; (ii) as maturities increase, the responses of all interest rates to the policy shock increase; (iii) the responses to the policy shock of credit interest rates with higher demand elasticity and longer maturity, such as vehicle and housing rates, is lower than those of others that we consider and (iv) the interest-rate responses of foreign-currency-denominated commercial credits are lower than those of domestic-currency-denominated commercial credits.
Keywords: Interest Rate Pass-Through; Monetary Policy; and FAVAR
JEL Codes: E43, E52, E58, and E59.

Volatility of Volatility in Emerging Markets

N. Alper Gormus and Tufan Tiglioglu

This study utilizes some of the recently created CBOE volatility indexes and measures the short-run, long-run and volatility of volatility (VOV) transmission relationships between those indexes and the CBOE Emerging Markets ETF Volatility Index. Our results show that USD/EUR, Oil, Gold and U.S. stock market volatility significantly impact emerging markets in the short-run. While Oil and Gold volatility still directly impact emerging markets' volatility in the long-run, U.S. stock market's volatility provide an indirect relationship. In addition, our findings indicate that the VOV is a significant factor between markets. We find the VOV of oil, gold and S&P 500 directly transmit to emerging markets' VOV.
Keywords: Emerging Markets, Volatility, Volatility of Volatility
JEL Codes: G11, G15

Internal Financial Factors and their Impact on Strategic Financial Performance in the presence of DFPF's

Dr.Muayad Abdulrahman Aldoori and Dr. Rasha Anwar Abbas

This study test the impact of internal financial factors (capital adequacy,recruitment of deposits, and operational efficiency) andthe distinguishing financial performance factors (DFPF's)on strategic financial performance represented by the market value addedjointly and separately. To test the hypotheses of the study data has been collected for the variables through the annual financial reports of the Central Bank of Jordan and the annual financial statements of commercial banks (sample of nine banks) for the period (2005-2012). The results of the study showed a significant effect of moral study combined with variables interpreted (89%) Of the change in market value added.While showed a weak impact of factors (internal financial factors and the factors of financial performance separately). Based on these findings the study came up with a set of recommendations was: importance of Jordanian commercial banks went about using standard market value added as one of the criteria for evaluating the financial performance of banks.
Keywords: Internal financial factors, distinguish financial performance factors (DFPF's), Strategicfinancial performance, Panel regression.

Does Deposit Money Banks' Credit to the Productive Sector Significantly Affect Economic Growth in Nigeria?

Ugwu Okereke J

This work examines the effect of Deposit Money Banks intermediation role on the economic growth in Nigeria. Specifically, it ascertains to which extent sectorial credit allocation by the deposit money banks have impacted on the growth of the economy. Time series data covering periods of 1986 - 2013 when Nigerian economy moved from its repressed state to market based state was used. The Ordinary Least Square (OLS) technique with Multiple Regression Model (MRM) was employed for its analysis and for computational simplicity. The findings indicate that bank's credit to the productive sector, although has a positive relationship with economic growth have not impacted on the real sector as much as expected as the impact is insignificant as revealed by the t-test. Only the manufacturing credit however has a positively significant impact on the economic growth. The implication is that credit flow from the deposit money banks to the real activities (agriculture, mining, and manufacturing) has been grossly inadequate. In other words, the banking sector has not been playing its catalytic role in enhancing the real sector potentials. Thus, the need for creating financial accommodation for economic growth through initiatives such as development finance, venture capital and public-private partnership has become absolutely unavoidable. The implication that can be drawn from this work is that to ensure that the banking system performs its role of credit allocation effectively it must channel funds into productive investments and more productive uses.
Keywords: Productive Sector, Deposit Money Banks, Economic Growth, Real Gross Domestic Product

Tariff Shocks and Macroeconomic Dynamics in a Fixed Exchange Rate Regime

Chung-Fu Lai

This paper takes the New Open Economy Macroeconomics as the analysis framework to establish a two-country model with imperfectly competitive market structure. The purpose of this paper is to explore the long-term and short-term effects of tariff on macroeconomic variables (such as consumption, output, price, etc.) in a fixed exchange rate regime, and attempts to explain the role of "consumption home bias" plays in the scenario. Through theoretical derivation and simulation analysis, we find that in a fixed exchange rate regime, the dynamic effects of tariff on consumption, output and price index are affected by the consumption bias behaviors of domestic and foreign consumers on import and export goods. That is, when the consumers of domestic and foreign country have asymmetric consumption bias behavior, the dynamic adjustment process of macroeconomic variables in the face of tariff shock is likely to show undershooting, overshooting, or mis-adjustment.
Keywords: Tariff Shocks, Consumption Home Bias, Macroeconomic Dynamics, Fixed Exchange Rate Regime, New Open Economy Macroeconomics

The Relationship Between Financial Soundness Indicators and Financial Stability in Nigeria

Ini S. Udom, Onwe, B. U. and Eze, Onyekachi R.

This paper undertook an evaluation of the use of financial soundness indicators in analyzing financial stability in Nigerian financial system between first quarter of 2007 to second quarter of 2015 using Financial Soundness Indicators (FSIs). The study made use of Correlation technique and graph as methodology. The Financial soundness indicators were categorized into Asset Based, Capital Based and Income and Expense Based Indicators. The study revealed the strengths and weaknesses of the study in the period under study. The Asset based indicators revealed the crises in the system when the ratio of Nonperforming loans to Total loans exceeded 30 per cent in the second quarter 2010 and the ratio of Liquid Assets to Short Term Liabilities declined to below 12 per cent in the third quarter of 2009. The Capital Based indicators also highlighted the wiping out of the asset base of the banking system with the Nonperforming Loans net of Provisions to capital hitting 25 per cent in Qtr 3 2010. The result of income and expenses based indicator shows that the income of the banking system from core intermediation functions was dwindling for the period reviewed. The policy implication of this is that the various policies, initiatives and interventions by the CBN aimed at sanitizing the financial sector especially the area of financial soundness indicators has actually ensure stability in financial system in Nigeria. The paper recommends that financial soundness indicators should be used as a complimentary regulatory policy tool to detect potential threat so that timely pre-emptive policy measures could be taken to avert financial instability through financial crisis. Also, the use of FSIs should be supplemented with leading indicators and Stress Testing.
Keywords: FSIs, Stability, Asset Based, Capital Based and Income and Expense Based