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A Study on the Long-Run Consumption Risk in Foreign Currency Risk Premia (장기소비 위험을 이용한 통화포트폴리오 수익률에 관한 연구)

  • Liu, Won-Suk;Son, Sam-Ho
    • Journal of Distribution Science
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    • v.11 no.10
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    • pp.55-62
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    • 2013
  • Purpose - The purpose of this study is to suggest a risk factor that significantly explains foreign currency risk premia. In recent years, some studies have found that the performance of the simultaneous consumption risk model improves considerably when tested on foreign currency portfolios, which are constructed based on the international interest rates differentials. However, this paper focuses on the long-run consumption risk factor. In our empirical research, we found that the real excess returns of high interest rate currency portfolios depreciate on average, when the future American long-run consumption growth rate appears low. This makes the high interest rate currency portfolios have relatively high risk premia. Meanwhile, the real excess returns of low interest rate currency portfolios appreciate on average, under the same conditions, which results in relatively low risk premia for these portfolios. Therefore, this long-run consumption risk factor might explain why low interest rate currencies do not appreciate as much as the interest rate differential, and why high interest rate currencies do not depreciate as much as the interest rate differential. Research design, data, methodology - In our explanation, we provide new evidence on the success of long-run consumption risks in currency risk premia by focusing on the long-run consumption risks borne by American representative investors. To uncover the hidden link between exchange rates and long-run consumption growth, we set the eight currency portfolios as our basic assets, which have been built based on the foreign interest rates of eighty countries. As these eight currency portfolios are rebalanced every year, the first group always contains the lowest interest rate currencies, and the last group contains the highest interest rate currencies. Against these basic eight currency portfolios, we estimate the long-run consumption risk model. We use recursive utility framework and the stochastic discount factor that depends on the present value of expected future consumption growth rates. We find that our model is optimized in the two-year period of constructing the durable consumption expectation factor. Our main results surprisingly surpass the performance of the existing benchmark simultaneous consumption model in terms of R2, relatively risk aversion coefficient γ, and p-value of J-test. Results - The performance of our model is superior. R2, relatively risk aversion coefficient γ, and p-value of J-test of our long-run durable consumption model are 90%, 93%, and 65.5%, respectively, while those of EZ-DCAPM are 87%, 113%, and 62.8%, respectively. Thus, we can speculate that the risk premia in foreign currency markets have been determined by the long-run consumption risk. Conclusions - The aggregate long-run consumption growth risk explains a large part of the average change in the real excess returns of foreign currency portfolios. The real excess returns of high interest rate currency portfolios depreciate on average when American long-run consumption growth rate is low, and the real excess returns of low interest rate currency portfolios appreciate under the same conditions. Thus, the low interest rate currency portfolios allow investors to hedge against aggregate long-run consumption growth risk.

A Study on the Impact of Oil Price Volatility on Korean Macro Economic Activities : An EGARCH and VECM Approach (국제유가의 변동성이 한국 거시경제에 미치는 영향 분석 : EGARCH 및 VECM 모형의 응용)

  • Kim, Sang-Su
    • Journal of Distribution Science
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    • v.11 no.10
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    • pp.73-79
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    • 2013
  • Purpose - This study examines the impact of oil price volatility on economic activities in Korea. The new millennium has seen a deregulation in the crude oil market, which invited immense capital inflow into Korea. It has also raised oil price levels and volatility. Drawing on the recent theoretical literature that emphasizes the role of volatility, this paper attends to the asymmetric changes in economic growth in response to the oil price movement. This study further examines several key macroeconomic variables, such as interest rate, production, and inflation. We come to the conclusion that oil price volatility can, in some part, explain the structural changes. Research design, data, and methodology - We use two methodological frameworks in this study. First, in regards to the oil price uncertainty, we use an Exponential-GARCH (Exponential Generalized Autoregressive Conditional Heteroskedasticity: EGARCH) model estimate to elucidate the asymmetric effect of oil price shock on the conditional oil price volatility. Second, along with the estimation of the conditional volatility by the EGARCH model, we use the estimates in a VECM (Vector Error Correction Model). The study thus examines the dynamic impacts of oil price volatility on industrial production, price levels, and monetary policy responses. We also approximate the monetary policy function by the yield of monetary stabilization bond. The data collected for the study ranges from 1990: M1 to 2013: M7. In the VECM analysis section, the time span is split into two sub-periods; one from 1990 to 1999, and another from 2000 to 2013, due to the U.S. CFTC (Commodity Futures Trading Commission) deregulation on the crude oil futures that became effective in 2000. This paper intends to probe the relationship between oil price uncertainty and macroeconomic variables since the structural change in the oil market became effective. Results and Conclusions - The dynamic impulse response functions obtained from the VECM show a prolonged dampening effect of oil price volatility shock on the industrial production across all sub-periods. We also find that inflation measured by CPI rises by one standard deviation shock in response to oil price uncertainty, and lasts for the ensuing period. In addition, the impulse response functions allude that South Korea practices an expansionary monetary policy in response to oil price shocks, which stems from oil price uncertainty. Moreover, a comparison of the results of the dynamic impulse response functions from the two sub-periods suggests that the dynamic relationships have strengthened since 2000. Specifically, the results are most drastic in terms of industrial production; the impact of oil price volatility shocks has more than doubled from the year 2000 onwards. These results again indicate that the relationships between crude oil price uncertainty and Korean macroeconomic activities have been strengthened since the year2000, which resulted in a structural change in the crude oil market due to the deregulation of the crude oil futures.

Option Pricing and Sensitivity Evaluation Methodology: Improvement of Speed and Accuracy (옵션 가치 및 민감도 평가 방법: 속도와 정확도 개선에 대한 고찰)

  • Choi, Young-Soo;Oh, Se-Jin;Lee, Won-Chang
    • Communications for Statistical Applications and Methods
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    • v.15 no.4
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    • pp.563-585
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    • 2008
  • This paper presents how to improve the efficiency and accuracy in the pricing and sensitivity evaluation for derivatives, since the need for the evaluation of complicated derivatives is increased. The Monte Carlo(MC) simulation using the quasi random number instead of pseudo random number can improve the elapsed time and accuracy for the valuation of European-type derivatives. However, the quasi MC simulation method has its limit for applying it in the multi-dimensional case such as American-type and path-dependent options due to the increased correlation between dimensions as the dimension of random numbers is increased. In order to complement this problem, we develop a modified method in which correlation values are controlled to be below a pre-specified value. Thus, this method is applicable for the pricing of either derivatives ill which underlying assets or risk factors are several or derivatives having path-dependent or early redemption property. Furthermore, we illustrate that it is important to take an appropriate grid interval for the use of finite difference method(FDM) by applying the FDM to one example of non-symmetrical butterfly spreads.

Determinants of Leverage for Manufacturing Firms Listed in the KOSDAQ Stock Market (한국 KOSDAQ 상장기업들의 자본구조 결정요인 분석)

  • Kim, Han-Joon
    • Journal of the Korea Academia-Industrial cooperation Society
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    • v.13 no.5
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    • pp.2096-2109
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    • 2012
  • This study investigates empirical issues that have received little attention in the previous research in the Korean capital market. It is to find any financial determinants on the capital structure for the firms listed in the KOSDAQ(Korea Securities Dealers Automated Quotation). Another test is performed to find any possible discriminating factors by utilizing a robust methodology, which may distinguish between the firms belonging the 'prime section' and the 'venture section' in terms of their financial aspects. Moreover, the null hypothesis that the changing trend or movement of a firm's capital structure with respect to its industry mean (or median) may be random, is also tested. For the book-value based debt ratios, size(INSIZE), growth(GROWTH), Market to book value of equity(MVBV), volatility(VOLATILITY), market value of equity (MVE) and section dummy (SECTION) showed their statistically significant effects on the book-value based leverage ratios, respectively, while size(INSIZE), growth(GROWTH), market value of equity(MVE), beta(BETA) and section dummy (SECTION) showed their statistically significant effects on the market-value based leverage ratios. This study also found an interesting result that a firm belonging to each corresponding industry has a tendency for reversion toward its mean and median leverage ratios over the five-year tested period.

Effect of Smart Life on Politics, Society, Culture, and Economy (스마트라이프가 정치.사회.문화.경제에 미치는 영향)

  • Kim, Man-Ki
    • Journal of Digital Convergence
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    • v.9 no.6
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    • pp.91-102
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    • 2011
  • Smart work is deeply embedded in our contemporary lives. This is called Smart Life. The expansion of communication, caused by smart life is utilized for the political purposes of politicians, political candidates, and political policies. Chiefly, smart life includes improvement in awareness, personal relations, and policy advocacy. Socially, smart life leads the proliferation of issues and civil movement. In particular, smart life has a significant effect on culture. In the case of K-POP, it is disseminated going beyond space time. It enhances economic value added by joining and sharing at the same time. Smart life has numerous advantages such as improving the quality of life, but it might cause inconvenience depending on users because there are differences in acceptance according to generations. Due to the heavy weight on the device, there are some side-effects such as lacking in human thinking, disclosure in private life, lacking in basic securities, increase in information addicts who are anxious when they do not get on the Internet or SNS, and interference with work. However, this inconvenience can change into convenience when users are accustomed to it. Like this, smart life influences politics, economy, society, and culture a lot. Working environment of smart life is a new paradigm, which can generate high performance through working in an exciting and bright atmosphere with easy economy and putting value on results.

Effect of Small and Medium Businesses' R&D Intensity and Patents on Their P/E Ratios (중소기업의 연구개발집중도와 특허가 주가수익률에 미치는 영향 연구)

  • Park, Jung-Hee;Yeo, In-Gook;Moon, Jong-Beom
    • Journal of Korea Technology Innovation Society
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    • v.14 no.3
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    • pp.466-487
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    • 2011
  • This study analyzed the effect of small and medium businesses' R&D intensity and patents on their price-earnings (P/E) ratios. Regression analysis was conducted on a sample of manufacturers listed on the Korean Securities Dealers Automated Quotations (KOSDAQ) for the past decade (2000~2009). The result is summarized as follows. First, a negative correlation was identified between companies' R&D intensity and their P/E ratios, but no significant relationship was found between their numbers of domestic patent applications and registrations and P/E ratios. Second, the analysis of the effect of the companies' R&D intensity on their P/E ratios resulted in a negative correlation of -1%. Third, the analysis of the effect of the companies' number of domestic patent applications and registrations on their P/E ratios showed that they did not have any significant relationship. Fourth, high-tech firms' R&D intensity had a negative correlation of -1% with their P/E ratios, but had a positive correlation of 1% with their numbers of domestic patent applications. Furthermore, the R&D intensity of middle-to-high and middle-to-low tech enterprises had a negative correlation of -1% with their P/E ratios, whereas their numbers of domestic patent applications and registrations had no significant relationship with their P/E ratios. The above results suggest that to produce successful outcomes from their R&D investment and patents, individual firms need strategies for technological innovation that relate to their technological level.

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The A Study on the Characteristics of Internal Control System's Operation and Accounting Information Quality - Focused on Hong Kong Public Company (내부시스템 운영과 회계정보 질의 특성에 대한 연구 - 홍콩 GEM상장 기업을 중심으로)

  • Kim, Dong-Il;Xu, Meng-Jun
    • Journal of Digital Convergence
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    • v.18 no.1
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    • pp.121-127
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    • 2020
  • This study analyzed through GEM-listed companies for verifying the interrelationship between positive and negative impacts on accounting information GEM-listed companies, whether venture firms operate the internal control operation system stably. Hong Kong's GEM listed company is a securities market similar to Korea's KOSDAQ market. To analyzing this study, used regression analysis method through internal control index to evaluate the operation of internal control system and discretionary accruals to evaluate the quality of accounting information. In this study, because profit adjustments used to realize through discretionary accruals, so analyzed using the modified Jones model to check whether the management deliberately transformed the company to realize future profits. In the empirical analysis, the correlation between the internal control index and the discretionary accruals to assess the quality of accounting information was able to find highly correlated. This study can provide useful guidance for evaluating the form and value of profit management of venture firms in the future, also would expect to help understand the financial environment of emerging venture firms.

Financial Structure, Ownership, and Corporate Control (기업의 소유구조 및 지배력과 재무구조)

  • Rhieu, Sang-Yup;Cheong, Ki-Moon
    • Korean Business Review
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    • v.11
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    • pp.195-216
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    • 1998
  • Ownership of an asset can be identified with the right to exercise "residual control" where the contract is silent about decision rights, or with the right to receive any "residual returns" that remain after contractual. obligations are fulfilled. Although the concept of "ownership" seems reasonably clear in many of the cases, the concepts of residual control and the residual returns that define ownership are actually quite elusive. For large corporations, there is really no single individual who owns both the residual returns and the residual control. Despite the limited qualifications, ownership is clearly. the most common and effective meas to motivate people to create, maintain, and improve the value of assets. In this paper, we try to clarify the relationships among financial structure, ownership, and corporate control with the concept of ownership defined as the residual control and the residual returns, Financial securities are not just claims to part of a firm's net income. They give the security holder certain rights. A careful matching of rights of control and returns can create incentives that increase total value of the firms. In the corporate firms, managers, lenders, and shareholders have different interests. And the financial structure affects how different those interests are and what decisions management will make. Managers are, in general, better informed than investors about the firm's prospects. The financial decisions by managers may affect investors' beliefs and, therefore, the price of shares and the value of the firm.

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Design of Adaptive Security Framework based on Carousel for Cognitive Radio Network (인지무선네트워크를 위한 회전자 기반 적응형 보안프레임워크 설계)

  • Kim, Hyunsung
    • Journal of the Institute of Electronics and Information Engineers
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    • v.50 no.5
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    • pp.165-172
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    • 2013
  • Convergence is increasingly prevalent in the IT world which generally refers to the combination of two or more different technologies in a single device. Especially, the spectrum scarcity is becoming a big issue because there are exponential growth of broadcasting and communication systems in the spectrum demand. Cognitive radio (CR) is a convergence technology that is envisaged to solve the problems in wireless networks resulting from the limited available spectrum and the inefficiency in the spectrum usage by exploiting the existing wireless spectrum opportunistically. However, the very process of convergence is likely to expose significant security issues due to the merging of what have been separate services and technologies and also as a result of the introduction of new technologies. The main purpose of this research is focused on devising an adaptive security framework based on carousel for CR networks as a distinct telecommunication convergence application, which are still at the stage of being developed and standardized with the lack of security concerns. The framework uses a secure credential, named as carousel, initialized with the location related information from objects position, which is used to design security mechanisms for supporting privacy and various securities based on it. The proposed adaptive security framework could be used as a security building block for the CR network standards and various convergence applications.

A Study on the Long-Run Equilibrium Between KOSPI 200 Index Spot Market and Futures Market (분수공적분을 이용한 KOSPI200지수의 현.선물 장기균형관계검정)

  • Kim, Tae-Hyuk;Lim, Soon-Young;Park, Kap-Je
    • The Korean Journal of Financial Management
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    • v.25 no.3
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    • pp.111-130
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    • 2008
  • This paper compares long term equilibrium relation of KOSPI 200 which is underling stock and its futures by using general method fractional cointegration instead of existing integer cointegration. Existence of integer cointegration between two price time series gives much wider information about long term equilibrium relation. These details grasp long term equilibrium relation of two price time series as well as reverting velocity to equilibrium by observing difference coefficient of error term when it renounces from equilibrium relation. The result of this study reveals existence of long term equilibrium relation between KOSPI200 and futures which follow fractional cointegration. Difference coefficient, d, of 'two price time series error term' satisfies 0 < d < 1/2 beside bandwidth parameter, m(173). It means two price time series follow stationary long memory process. This also means impulse effects to balance price of two price time series decrease gently within hyperbolic rate decay. It indicates reverting speed of error term is very low when it bolts from equilibrium. It implies to market maker, who is willing to make excess return with arbitrage trading and hedging risk using underling stock, how invest strategy should be changed. It also insinuates that information transition between KOSPI 200 Index market and futures market does not working efficiently.

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