The early‐warning system of stock market crises with investor sentiment: Evidence from China

Zhang, Rengui; Xian, Xueshen; Fang, Haowen

doi:10.1002/ijfe.1667

Cited by 20 publications

(15 citation statements)

References 29 publications

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“…Because production and energy‐saving technologies still lag significantly behind that in the developed countries in the world, China's real economy has excessively consumed large quantities of bulk commodities such as energy, ore products, and non‐ferrous metals. China has become the world's largest consumer of iron, lead, copper, zinc‐nickel and aluminium ores, and so forth (Zhang, Xian, & Fang, 2019). If the real economy grows rapidly, more bulk commodities will be needed.…”

Section: Discussionmentioning

confidence: 99%

Large fluctuations of China's commodity prices: Main sources and heterogeneous effects

Lin

2020

Int. J Fin Econ

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Assuming that the economic variables obey the normal distribution, existing studies often use traditional mean models to explore commodity prices. In fact, the distribution of economic data is often skewed. When the economic data is left‐biased or right‐biased, the quantile regression can more fully characterize the distribution of economic variables, and thus obtain a comprehensive analysis result. Moreover, the coefficient estimates of the quantile regression are more robust than those in the ordinary least squares regression. Therefore, this paper uses the quantile regression method to investigate commodity price fluctuations. The results show that the money supply has a greater impact on commodity prices in the lower 10th and 10th–25th quantile groups. Among all quantile groups, the impact of international oil prices on commodity prices in the upper 90th quantile group is the highest. The effect of the exchange rate in the 25th–50th quantile group is greater than those in other quantile groups. However, the real economy has a minimal impact on the 25th–50th quantile group. Thus, the heterogeneous effects of these influencing factors should be taken into consideration when stabilizing commodity prices.

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Section: Discussionmentioning

confidence: 99%

Large fluctuations of China's commodity prices: Main sources and heterogeneous effects

Lin

2020

Int. J Fin Econ

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“…2 Zhang et al (2019) used 25% and 50% thresholds for their early warning system while Kaminsky et al (1998) used a 10% threshold for the signal extraction early warning system. However, these thresholds are too high to capture misalignment in this study.…”

Section: Methodsmentioning

confidence: 99%

Exchange Rate Misalignment and Capital Flight from Botswana: A Cointegration Approach with Risk Thresholds

Bosupeng

Dzator

Nadolny

2019

JRFM

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This study investigates the impact of exchange rate misalignment on outward capital flight in Botswana over the period 1980–2015. The study uses the autoregressive distributed lag (ARDL) approach to cointegration and the Toda and Yamamoto (1995) approach to Granger causality. Botswana’s currency misalignment was caused by current account imbalances. The most important determinant of capital flight from Botswana is trade openness, which indicates that exportable commodities are misinvoiced leading to net capital outflows. Our main findings show that in the long-run, when the currency is overvalued, the volume of capital flight through trade misinvoicing declines and increasing foreign reserves does not reduce outward capital flight. However, when the currency is undervalued, the volume of capital flight through trade misinvoicing increases and foreign reserves reduce outward capital flight. Investors respond more to prospects of devaluation than to inflation. Botswana should tolerate overvaluation of the pula of only up to 5%. When the pula is overvalued beyond 5%, capital flight increases substantially. The government has to formulate trade regulations and monitor imported and exported commodities. Botswana should also implement capital controls to limit capital smuggling and maintain monetary autonomy.

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“…As a contribution to the literature, a 5% threshold 2 for misalignment is set to capture only significant deviations from the equilibrium real effective exchange rate (EREER). Therefore, from Equation (3), OVER and UNDER are defined as: Zhang et al (2019) used 25% and 50% thresholds for their early warning system while Kaminsky et al (1998) used a 10% threshold for the signal extraction early warning system. However, these thresholds are too high to capture misalignment in this study.…”

Section: Methodsmentioning

confidence: 99%

Exchange Rate Misalignment and Capital Flight from Botswana: A Cointegration Approach with Risk Thresholds

Bosupeng

Dzator

Nadolny³

2019

SSRN Journal

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This study investigates the impact of exchange rate misalignment on outward capital flight in Botswana over the period 1980-2015. The study uses the autoregressive distributed lag (ARDL) approach to cointegration and the Toda and Yamamoto (1995) approach to Granger causality. Botswana's currency misalignment was caused by current account imbalances. The most important determinant of capital flight from Botswana is trade openness, which indicates that exportable commodities are misinvoiced leading to net capital outflows. Our main findings show that in the long-run, when the currency is overvalued, the volume of capital flight through trade misinvoicing declines and increasing foreign reserves does not reduce outward capital flight. However, when the currency is undervalued, the volume of capital flight through trade misinvoicing increases and foreign reserves reduce outward capital flight. Investors respond more to prospects of devaluation than to inflation. Botswana should tolerate overvaluation of the pula of only up to 5%. When the pula is overvalued beyond 5%, capital flight increases substantially. The government has to formulate trade regulations and monitor imported and exported commodities. Botswana should also implement capital controls to limit capital smuggling and maintain monetary autonomy. ). This study evaluates the impact of exchange rate misalignment on capital flight from Botswana over the period 1980-2015. The country aims to attract capital inflows to develop economic sectors other than mining. Botswana is unique because unlike other developing economies, it used only the fixed exchange rate regime since 1976. There has been no exchange rate regime change and the country has experienced significant undervaluation and overvaluation of the currency. It is conceivable that such misalignment has an impact on outward capital flight in Botswana. Botswana needs capital inflows for economic diversification, therefore, it is imperative to determine the impact of misalignment on capital flight from Botswana.This study empirically investigates the impact of exchange rate misalignment on capital flight from Botswana. The examination contributes to the literature in two important ways. First, previous studies posit that the pula is overvalued but there is no study that evaluates the impact of exchange rate misalignment on capital flight from Botswana. The present study aims to fill this gap. The results of this study are important for implementing macroeconomic policies that support capital inflows for economic diversification in Botswana. Further, the World Bank (2019) indicates that Botswana's diamond mines will be depleted by 2030. In the absence of diamonds, Botswana's economic growth will decline drastically. Correcting exchange rate misalignment is necessary for early economic diversification and sustainable economic growth without diamonds.Second, this investigation extends Gouider and Nouira (2014) methodological approach to misalignment. Gouider and Nouira (2014) defined overvaluation and underva...

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The early‐warning system of stock market crises with investor sentiment: Evidence from China

Cited by 20 publications

References 29 publications

Large fluctuations of China's commodity prices: Main sources and heterogeneous effects

Large fluctuations of China's commodity prices: Main sources and heterogeneous effects

Exchange Rate Misalignment and Capital Flight from Botswana: A Cointegration Approach with Risk Thresholds

Exchange Rate Misalignment and Capital Flight from Botswana: A Cointegration Approach with Risk Thresholds

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