The main purpose of the study is: i. to examine the long- and short-term dynamic linkages among international and Asian emerging stock markets and then ii. try to quantify the extent of the Asian stock market fluctuations which are explained by intra-regional contagion effect. The study, therefore, proceeds first by examining the dynamic causal linkages among eight national daily stock price indices four major established markets and four Asian emerging markets. and then quantifying the extent of their dynamic interdependencies through the application of recent time-series econometric techniques a. vector error-correction model Toda and Phillips, 1993. and b. level VAR model containing integrated and cointegrated processes of arbitrary orders Toda and Yamamoto, 1995. At the global level, the findings tend to confirm the widely-held view of the leadership of the US over both the short- and long-term and the existence of a significant short- and long-term relationship between the established OECD and the emerging Asian markets

This study constructs active Islamic portfolios using a multi-style rotation strategy, derived from the three prominent styles, namely, momentum, value, and quality investing. We use the stocks that are consistently listed in the U.S. Dow Jones Islamic index for a sample period from 1996 to 2012. We also include two macroeconomic mimicking portfolios to capture the premiums of industrial production growth and inflation innovation, accommodating the economic regime shifts. Based on the information coefficients, we find the six-month momentum and the fractal measure as momentum factors; the enterprise yield (gross profit/TEV) and the book to market ratio as valuation factors; the gross profit to total assets, the return on capital, and the scaled total accruals as quality factors. We further construct active portfolios using the augmented Black Litterman (ABL) factor model to avoid the factor alignment problem, with the factor views predicted using Markov Switching VAR, MIDAS, and Bayesian Model Averaging. The out-of-sample performance of our portfolios can produce information ratios of 0.7–0.8 over the composite indices, and information ratios of 0.42–0.48 over the style indices, with the annualized alphas of 10–11%. Even when we put the constrained tracking error of 1% over the benchmark, our portfolios still produce information ratios of 0.9–1.2 before transaction costs, and 0.6–0.8 after transaction costs. We provide intuitive explanations for each premium changing over time, and suggest the promising strategy for Islamic equity investors to outperform the market.

It is demonstrated how the techniques of unit root testing and cointegration may be used to test for common stochastic trends, and their implications for addressing the market efficiency hypothesis (MEH) in a multivariate context within a seven-variable system of major daily (unpublished) spot exchange rates of the Malaysian ringgit. Finding the evidence of two cointegrating vectors, a vector error-correction model is developed to test for the direction of temporal causal dynamics (in the Gratiger sense) within this system before investigating the relative strength of the causality by decomposing the total impact of an unanticipated shock to each of the variables beyond the sample period, into proportions attributable to shocks in the other variables including its own. Results from the analysis tend to suggest a violation of the MEH in a speculative sense, due to the presence of two cointegrating vectors which also withstood the temporal instability test.

The patterns of dynamic linkages are examined among national stock prices of four Asian Newly Industrializing Countries stock markets - Taiwan, South Korea, Singapore and Hong Kong - in models incorporating the established markets of Japan, USA, UK and Germany. Recent time-series techniques are employed, including unit root testing, multivariate cointegration, vector error-correction modelling (VECM), forecast error variance decomposition (VDC) and impulse response functions (IRFs). The results consistently appear to suggest the relatively leading role of all established markets in driving fluctuations in the NIC stock markets. In other words, all established markets and Hong Kong, consistently were the initial receptors of exogenous shocks to the (long-term) equilibrium relationships and the other NIC markets, particularly the Singaporean and Taiwanese markets had to bearmost of the burden of short-run adjustment to re-establish the long-termequilibriumrelationship. In comparison to all other NIC markets, Taiwan and Singapore appear as the most endogenous, with Taiwan providing evidence of its short-term vulnerability to shocks from the established markets.

We provide a new contribution to trading strategies by using multi-fractal de-trended fluctuation analysis (MF-DFA), imported from econophysics, to complement various momentum strategies. The method provides a single measure that can capture both persistency and anti-persistency in stock prices, accounting for multifractality. This study uses a sample of Islamic stocks listed in the U.S. Dow Jones Islamic market for a sample period covering 16 years starting in 1996. The findings show that the MF-DFA strategy produces monthly excess returns of 6.12%, outperforming other various momentum strategies. Even though the risk of the MF-DFA strategy may be relatively higher, it can still produce a Sharpe ratio of 0.164, which is substantially higher than that of the other strategies. When we control for the MF-DFA factor with the other factors, its pure factor return is still able to yield a monthly excess return of 1.35%. Finally, we combine the momentum and MF-DFA strategies, with the proportions of 90/10, 80/20, and 70/30 and by doing so we demonstrate that the MF-DFA measure can boost the total monthly excess returns as well as Sharpe ratio. The value added is non-linear which implies that the additional returns are associated with lower incremental risk

Unlike most empirical works on fertility analysis, this study is the first attempt to analyse the dynamics of fertility and its determinants with a particular focus on the role played by female education and family planning programmes in the context of a traditional society. The analysis is based on the application of the following dynamic time-series techniques in a multivariate context: cointegration, vector error-correction modelling and variance decompositions. These `dynamic' tools are recently developed and hitherto untried in fertility analysis in the context of a poor developing economy, such as India. The results based on the above most recently developed methodology, broadly indicate that in the complex dynamic interactions, the importance of conventional `structural - hypothesis as a `Granger-causal' factor in bringing fertility down in the longer term cannot be denied. However, overall, in the short to long term, the findings appear to be more consistent with the recent `ideational' hypothesis (emphasizing the critical role played by the two policy variables in the analysis - i.e. changes in the female secondary enrolment ratios, and family planning programmes to ensure `initial' fertility decline) than with the conventional `structural' hypothesis (emphasizing a signifcant socio-economic structural change as a pre-condition for `initial' fertility decline).

Unlike previous studies on the causal relationship between energy consumption and economic growth, this paper illustrates how the finding of cointegration (i.e. long-term equilibrium relationship) between these variables, may be used in testing Granger causality. Based on the most recent Johansen's multivariate cointegration tests preceded by various unit root or non-stationarity tests, we test for cointegration between total energy consumption and real income of six Asian economies: India, Pakistan, Malaysia, Singapore, Indonesia and the Philippines. Non-rejection of cointegration between variables rules out Granger non-causality and imples at least one way of Granger-causality, either unidirectional or bidirectionial. Secondly, by using a dynamic vector error-correction model, we then analyse the direction of Granger-causation and hence the within-sample Granger-exogeneity or endogeneity of each of the variables. Thirdly, the relative strength of the causality is gauged (through the dynamic variance decomposition technique) by decomposing the total impact of an unanticipated shock to each of the variables beyond the sample period, into proportions attributable to shocks in the other variables including its own, in the bivariate system. Results based on these tools of methodology indicate that while all pair-wise relationships shared common univariate integrational properties, only relationships for three countries (India, Pakistan and Indonesia) were cointegrated. For these countries, temporal causality results were mixed with unidirectional causality from energy to income for India, exactly the reverse for Indonesia, and mutual causality for Pakistan. The VDCs were not inconsistent with these results and provided us with an additional insight as to the relatively more dominant direction of causation in Pakistan. Simple bivariate vector-autoregressive models for the three non-cointegrated systems did not indicate any direction of causality, significantly in either direction.

This study investigates the roles of Shariah-compliant asset classes as well as Shariah-compliant portfolio strategies, which are divided into three separate essays. The first essay investigates both conventional and Islamic investors' problems as to whether the inclusion of Islamic and conventional asset classes may expand the frontier of their respective portfolios. The sample covers the global U.S. portfolios and Malaysian portfolios with multiple asset classes, as well as the portfolios with a specific asset class in several regions. The study uses the recent mean-variance spanning test in multiple regimes, which not only accounts for tail risk but also identifies the source of value added (tangency portfolio or global minimum variance) ...

Although the cointegration technique is being extensively used for hypothesis testing, very little work has been done to substantiate the results derived from this technique either with respect to robustness of model specification or sample stability. This paper focuses on this issue and uses post-float Canadian spot and forward rates, along with those of six other major European currencies, in testing the market efficiency hypothesis (MEH) using cointegration techniques, as a case study. In so doing, emphasis is placed upon the pretesting of each series for stationarity via a menu of unit root tests; iterative tests for the number of cointegrating vectors over the sample period; and extensions of the analysis to construct multi-dimensional models in an examination of the MEH between the Canadian dollar and six major European currencies in both the spot and forward markets.

We investigate model uncertainty associated with predictive regressions employed in asset return forecasting research. We use simple combination and Bayesian model averaging (BMA) techniques to compare the performance of these forecasting approaches in short-vs. long-run horizons of S&P500 monthly excess returns. Simple averaging involves an equally-weighted averaging of the forecasts from alternative combinations of factors used in the predictive regressions, whereas BMA involves computing the predictive probability that each model is the true model and uses these predictive probabilities as weights in combing the forecasts from different models. From a given set of multiple factors, we evaluate all possible pricing models to the extent, which they describe the data as dictated by the posterior model probabilities. We find that, while simple averaging compares quite favorably to forecasts derived from a random walk model with drift (using a 10-year out-of-sample iterative period), BMA outperforms simple averaging in longer compared to shorter forecast horizons. Moreover, we find further evidence of the latter when the predictive Bayesian model includes shorter, rather than longer lags of the predictive factors. An interesting outcome of this study tends to illustrate the power of BMA in suppressing model uncertainty through model as well as parameter shrinkage, especially when applied to longer predictive horizons.

Unlike the findings of Mah (1994) [Mah, J.S. (1994) Japanese Import Demand Behaviour: The Cointegration Approach. Journal of Policy Modeling 16:291-298] who, based on the Engle-Granger test of cointegration, fails to find evidence of a long-run relationship among variables associated with an import demand function for Japan, in this analysis the Johansen's MLE multivariate cointegration procedure reveals that such variables seem to be cointegrated, and thus share a long-run equilibrium relationship. Furthermore, the recently prescribed Stock and Watson (1993) Dynamic OLS (DOLS) procedure, which, apart from being superior to a number of alternative estimators, is robust to small sample and simultaneity bias as well as being able to accommodate higher orders of integration, is employed to derive long-run import price and income elasticity estimates. Results reveal that both price and income variables do affect import demand significantly, and more interestingly, contrary to previous findings, play an important role in explaining Japanese import demand, at least over the long run. This finding is quite intuitive in that, although nonmarket forces did play a role in destablilizing Japanese import demand, this was most likely a short-run phenomena. Over the long term, however, such theoretically postulated economic influences outweighed short-run disturbances in achieving an equilibrium relationship. Finally, the innovative analytical techniques used in this study have a far-reaching potential for use in future applied research in a variety of fields.

The episodic wave of crises experienced across the global financial markets over the past two decades has raised questions surrounding the vulnerability of transitioning emerging and frontier equity markets to exogenous shocks. These markets, by design, have lacked the institutional or financial architecture supporting their capital base compared to more established markets. We make the initial attempt to examine four such stock markets (Saudi Arabia, UAE, South Africa and Israel). We perform multi-timescale analysis using wavelet-based time and frequency decompositions in order to investigate (i) whether the shocks transmitted were pure contagion or fundamental-based and (ii) also whether the dynamic evolution of stock market integration was mainly shortterm or long-term. We find that prior to the 2008/09 US subprime crisis, the shocks generated pure contagion in contrast to the subprime crisis that reveals evidence supportive of fundamental-based contagion. Further, when exploring the dynamics of market integration, we find that integration strengthens over time as opposed to any immediate short-term outcome. This supports policies engendered to promote stock market resiliency and stability.

This paper is motivated by the heightened interest in investing in Islamic equities. The paper is the first attempt at analysing the risk-return characteristics of Islamic indices at different timescales by applying a relatively new approach in finance known as wavelet analysis. We analyze the Dow Jones indices of 11 countries, mostly emerging markets, and 10 global sectors between 2008 and 2012. We focus on exploring the multi-horizon nature of systemic risk (market beta), average return, volatility, and correlation. We find that the differences in betas between Islamic and conventional indices at most of the timescales are not statistically significant. A few exceptions show equal returns with lower risks for Islamic indices mostly at higher time scales (longer horizons) in some countries as well as 6 out of 10 sectors. We also find lower correlations for some Islamic sector-pairs (financials, utilities and consumer services) at lower time scales (shorter horizons).

This study investigates both conventional and Islamic investors' problems as to whether the inclusion of Islamic and conventional asset classes may expand the frontier of their respective portfolios. Our sample covers the global U.S. portfolios and Malaysian portfolios with multiple asset classes, as well as the portfolios with a specific asset class in several regions. This study uses the recent mean variance spanning test in multiple regimes, which not only accounts for tail risk but also identifies the source of value added (tangency portfolio or global minimum variance). For intra-asset allocation, our findings tend to show that both Islamic and conventional fund managers of a specific asset class can benefit from conventional and Islamic asset classes, respectively, in several regimes. For inter-asset allocation, conventional institutional investors cannot obtain any value added from Islamic asset classes. On the contrary, the U.S. Islamic institutional investors can expand their tangency portfolio by investing in U.S. TIPSs and REITs, and reduce their global minimumvariance by allocating in U.S. high-yield bonds. Moreover, the Malaysian Islamic institutional investors can obtain risk reduction by investing in conventional bonds only in the high term premium regime. For the remaining asset classes, the opportunity sets are sufficient for Islamic investors to invest complying with Shariah rules. We provide some policy implications for the global Islamic financial industry.

This study examines market co-movements in Islamic and mainstream equity markets across different regions in order to discover contagion during 9 major crises and to measure integration between markets. Using wavelet decomposition to unveil the multi-horizon nature of co-movement, we find that the shocks were transmitted via excessive linkages, while the recent subprime crisis reveals fundamentals-based contagion. While Islamic markets show traces of reduced exposure to the recent crisis owing to low leverage effect, their less diversified portfolio nature increases vulnerability to other crises. We generally find incomplete market integration, with relatively higher fundamental integration for Islamic markets which may be attributable to their real sector allocation nature.