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Does Equity Derivatives Trading Affect the Systematic Risk of the Underlying Stocks in an Emerging Market: Evidence from Pakistan’s Futures Market
Safi Ullah Khan and Zaheer Abbas
Published:Jan - June 2013
This paper examines the behavior of beta coefficients (systematic risk) for
underlying stocks around the introduction of single-stock futures (SSFs) contracts
in the Pakistani market, by employing models that account for nonsynchronous
and thin trading and varying market conditions as “bull” and “bear” markets.
Unlike the results of earlier studies on US markets, the empirical evidence tends to
support a decline in systematic risk for the majority of underlying stocks in the
post-futures listings period. Nevertheless, similar to SSFs stocks, we also find
empirical evidence of a decrease in systematic risk for many of the control group
stocks. This indicates that changes in beta estimates for SSFs-listed stocks might
not be induced by the introduction of SSFs contract trading, but could be
attributed to other market-wide or industry changes that have affected the overall
market. Several plausible reasons, such as lack of program trading activities
normally associated with index futures, market microstructure differences between
developed markets and a developing market such as Pakistan, and the capturing of
the “bear” and “bull” market effects on stock betas in our estimation procedure
could explain these different results for Pakistan’s market.
KEYWORDS:
Systematic risk,
beta,
stock index futures,
single-stock futures,
stock price volatility,
GARCH model,
bear and bull markets,
thin trading,
Pakistan.
JEL:
G10,
G13.
The Co-determinants of Capital Structure and Stock Returns: Evidence from the Karachi Stock Exchange
Hamid Ahmad, Bashir A. Fida and Muhammad Zakaria
Published:Jan - June 2013
This study uses a structural model to analyze the co-determinants of
capital structure and stock returns. Applying a generalized method of moments
(GMM) model to a panel dataset for 100 nonfinancial firms for the period 2006–
10, our results indicate that both leverage and stock returns affect each other but
that the former has a dominant effect on the latter. The results illustrate that
profitability, growth, and liquidity are significant determinants of leverage and
stock returns. Profitability negatively affects leverage and positively affects stock
returns. Growth has a positive effect, while liquidity has a negative effect on
leverage and stock returns. Firm size does not have any significant effect on either
capital structure or stock returns.
KEYWORDS:
Capital structure,
stock returns,
GMM,
Pakistan.
JEL:
C33,
C36,
G30.
The Export Supply Response of Mangoes: A Cointegration and Causality Analysis
Abdul Ghafoor, Khalid Mushtaq and Abedullah
Published:Jan - June 2013
This paper analyzes the impact of major factors on the export of mangoes
from Pakistan. We use a cointegration approach and error correction mechanism
applied to data for the period 1970–2005. Mango exports are regressed against the
index of relative prices of mango exports (2000 = 100), the quantity of domestic
mango production, real agricultural gross domestic product (GDP), the length of
all-weather roads, and international standardization, i.e., the impact of the World
Trade Organization agreement. The results of the augmented Dickey-Fuller test
reveal that all the data series are I(1). Applying Johansen’s test shows that the
highest elasticity coefficients are found for mango production in the short and long
run, followed by real agricultural GDP. The Granger causality test points to the
bi-directional causality of mango exports with the relative price index and allweather
roads, and unidirectional causality with real agricultural GDP and mango
production. The study recommends promoting proper orchard management,
developing the appropriate infrastructure, and stabilizing export prices to increase
mango exports from Pakistan.
KEYWORDS:
Mango,
unit root,
cointegration,
Granger causality,
Pakistan.
JEL:
Q11.
The Impact of Health Information Provision on Breast Cancer-Related Knowledge and Protective Behaviors: An Experiment in Health Education
Sarah Shahed
Published:Jan - June 2013
This study examines the impact of health information provision on healthrelated
knowledge and corresponding behaviors. Our main assumption is that
women’s health can be improved by adopting health protective and healthenhancing
behaviors. The study employs a before–after, no-control-group design,
aimed at examining whether exposure to health knowledge concerning breast
cancer can change participants’ behavior in relation to breast self-examination.
Our sample consists of 50 young females whose knowledge and behavior related to
breast cancer was assessed in a pre-exposure phase, followed by an exposure session
during which they were shown a video film, participated in a discussion, and were
given health education literature about breast cancer to take home. Two weeks
later, the participants were reassessed, using the same measures. Their health
knowledge and behavior were found to have improved significantly. We
recommend that formal education should incorporate health education as part of
the curricula at all academic levels, especially for women. The mass media can also
play an important role in improving public health protective behavior.
KEYWORDS:
Health,
breast cancer,
behavior,
Pakistan.
JEL:
I10.
The Impact of Public School Enrolment on Child Labor in Punjab, Pakistan
Hamna Ahmed
Published:July - Dec 2012
This paper investigates the causal impact of public school enrolment on
child labor. Our main hypothesis is as follows: Is school enrolment a substitute for
child labor? Recognizing that schooling and work choices are jointly determined by
parents in a utility maximizing framework, the study applies an instrumental
variable solution to the problem of simultaneity. This approach entails using the
receipt of free textbooks and access to a public primary facility as instruments for
public school enrolment. Using data from the Multiple Indicator Cluster Survey
for 2007/08, our working sample consists of children between 5 and 14 years of
age, which makes up 25 percent of the surveyed population. The results suggest
that public school enrolment can be used as a substitute for child labor. On
average, a 1 percentage point increase in a household’s enrolment ratio has the
potential to reduce the number of hours of paid labor by almost 5 percentage points,
ceteris paribus. This substitutability is highest among poor, urban, male children.
Moreover, the incidence of child labor is higher among larger poor families.
KEYWORDS:
Child labor,
school enrolment,
instrumental variable,
tobit,
fixed effects,
education subsidy,
Pakistan.
JEL:
F66.
What Does Pakistan Have to Join the Inflation Targeters’ Club—a Royal Flush or a Seven-Deuce Offsuit?
Syed Kumail Abbas Rizvi, Bushra Naqvi and Sayyid Salman Rizavi
Published:July - Dec 2012
The economic and institutional structure required to successfully adopt
and implement an inflation targeting framework (ITF) is often lacking in
emerging economies. This paper evaluates these structures both qualitatively and
quantitatively for Pakistan’s economy. Although our comprehensive assessment
finds that many of the core requirements remain unrealized, the literature and
real-time experience argue that an ITF remains possible for emerging economies
even in the absence of these conditions. We investigate whether—were the State
Bank of Pakistan to adopt an ITF—there exists a stable and significant
relationship between the policy rate (monetary tool) and inflation measure
(objective). It is important to analyze this bivariate relationship, given the key
role of the interest rate in mitigating deviations between actual and target
inflation when working within an ITF. To illustrate this relationship, we use
Granger Causality test, but our estimates fail to find any significant link between
the interest rate and inflation. On the basis of our overall findings, we suggest
that Pakistan, in the absence of most of the fundamental requirements of an ITF,
is perhaps not yet ready for it.
KEYWORDS:
Inflation targeting,
Pakistan,
monetary policy.
JEL:
E52,
E30,
E58.
Human Capital and Multifaceted Innovation: Evidence from the Lahore Knitwear Cluster in Pakistan
Fahd Rehman
Published:July - Dec 2012
Clusters have the potential to grow, but their potential in Pakistan is
rarely analyzed and examined. This study examines the knitwear cluster of Lahore
in general and the performance of enterprises in particular. Most of the literature
on clusters in Pakistan has not looked at the characteristics of the individual
enterprises that play a pivotal role in cluster development. Using primary data
collected from 59 finished-knitwear producers in Lahore, this study assesses the
role of human capital in acquiring multifaceted innovations. We find that general
human capital acquired by schooling and specific human capital acquired through
operational experience is associated with the size of the enterprise. Additionally,
specific human capital acquired through operational and marketing experience is
strongly correlated with improved marketing channels.
KEYWORDS:
Clusters,
human capital,
schooling,
multifaceted,
Pakistan.
JEL:
E24.
The Harberger-Laursen-Metzler Effect: Evidence from Pakistan
Tayyaba Idrees and Saira Tufail
Published:July - Dec 2012
According to the Harberger-Laursen-Metzler (HLM) effect, an exogenous
temporary increase in the terms of trade leads to an improvement in the current
account balance. This paper uses a recursive vector autoregression to investigate
empirically the existence of the HLM effect in Pakistan, using a time series dataset
for the period 1980–2009. Two important results emerge. First, real income
deteriorates with an improvement in the terms of trade. Second, the current
account balance also responds negatively to innovations in the terms of trade,
which implies that the HLM effect does not exist in Pakistan.
KEYWORDS:
Terms of trade,
current account,
economic growth,
recursive VAR,
Pakistan.
JEL:
C3,
F32,
F41.
A Benefit Incidence Analysis of Public Spending on Education in Pakistan Using PSLM Data
Zahid Asghar and Mudassar Zahra
Published:July - Dec 2012
Education is one of the most important means of economic development,
and there is consensus among policymakers that it is better to be educated than not.
The debate on education is not, therefore, whether it is good or bad, rather it centers
on whether the state should intervene in its provision. Public provision of
education at the school level is generally considered one of the most important
investments for creating social opportunities to help the wider population actively
participate in various economic activities. This study investigates whether public
spending on education in Pakistan is pro-poor at various levels of schooling. We
find that public spending at the primary and secondary level is progressive, while
higher education spending is regressive. These results hold at the national and
provincial level. Based on these findings, we recommend that the government
increase its spending on primary, secondary, and technical education. Higher
education, however, should be provided on merit, and the private sector should be
encouraged to provide high-quality education.
KEYWORDS:
Education,
economic,
development,
Pakistan.
JEL:
I25.
Poverty, Income Inequality, and Growth in Pakistan: A Pooled Regression Analysis
Ahmed Raza Cheema and Maqbool H. Sial
Published:July - Dec 2012
This study estimates a set of fixed effects/random effects models to
ascertain the long-run relationships between poverty, income inequality, and
growth using pooled data from eight household income and expenditure surveys
conducted between 1992/93 and 2007/08 in Pakistan. The results show that
growth and inequality play significant roles in affecting poverty, and that the effect
of the former is substantially larger than that of the latter. Furthermore, growth
has a significant positive impact on inequality. The results also show that the
absolute magnitude of net growth elasticity of poverty is smaller than that of gross
growth elasticity of poverty, suggesting that some of the growth effect on poverty is
offset by the rise in inequality. The analysis at a regional level shows that both the
gross and net growth elasticity of poverty are higher in rural areas than in urban
areas, whereas the inequality elasticity of poverty is higher in urban areas than in
rural areas. At a policy level, we recommend that, in order to reduce poverty, the
government should implement policies focusing on growth as well as adopting
strategies geared toward improving income distribution.
KEYWORDS:
Poverty,
inequality,
growth,
pooled data,
Pakistan.
JEL:
I32,
O40.