This paper analyzes the impact of changes in the securities transaction tax (STT) rate on the local A-shares market in China. We …nd that, on average, a 22-base-point-increase in the STT rate is associated with about a 28% drop in trading volume, while a 17-base-point-reduction in the STT rate is associated with about a 89% increase in trading volume in the Chinese A-shares market. Both the increases and reductions in the STT rate result in a signi…cant increase in the market return volatility. Besides, the increases in the STT rate have mixed e¤ects on market e¢ ciency, either improving or curbing it. The reductions usually either make the market less e¢ cient or have not e¤ect on it. The empirical results together show that levying the STT on trading is not an e¤ective tool to regulate stock market, at least in this emerging market.
[Abstract]This paper analyzes the role of commodities in the process of strategic asset allocation, with an attempt of computing the weight of commodities relative to traditional assets in a multi-period portfolio choice problem and understanding the economic interpretations to its importance. We find U.S. investors have a significantly stable intertemporal hedging demand for commodities in the long horizons, even when they have access to foreign equity markets, for example, foreign stock market. Our results provide support to institutional investors attempting to include commodities into their strategic asset allocation decision.
This paper is the first study to examine the effectiveness of the Shanghai Fuel Oil Futures Contract (SHF) in risk reduction on the Chinese energy oil market. We find that the SHF contract can help investors reduce risk by approximately 45%, lower than empirical evidence in developed markets, when weekly data are applied. In contrast, when using daily data SHF contract can only help reduce risk by approximately 9%. The Tokyo Oil Futures Contract (TKF), however, performs two times better, reducing risk by around 17%. The empirical results are robust when variance complicated bivariate GARCH (BGARCH) and bivariate distributions are used. Our results imply the energy oil futures market in China is not well-established and further policy is needed to improve market efficiency.
Using the U.S. dollar exchange rate return series of three major Asia-Pacific currencies, this paper investigates the empirical relevance of structural breaks in exchange rate volatilities. We find significant evidence of structural breaks in the unconditional variances of all three exchange rate returns, implying unstable GARCH processes for these exchange rates. Various methods of accommodating structural breaks were considered when forecasting daily exchange rate volatility using GARCH models. In sharp contrast to previous evidence from currencies of developed countries, accommodating structural breaks, however, did not improve out-of-sample forecasts of exchange rate volatility, i.e., a simple GARCH(1,1) with expanding window model performed best in forecasting exchange rate volatilities in these emerging markets
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