Quarterly Publication of Multinational Finance Society • ISSN 1096-1879

The Performance of Trading Rules on Four Asian Currency Exchange Rates
(Multinational Finance Journal, 1997, vol. 1, no. 1, pp. 1-22)

Yin-Wong Cheung
University of California Santa Cruz, U.S.A.
Clement Yuk-Pang Wong
City University of Hong Kong

This article evaluates the performance of filter rules on four Asian exchange rates against the U.S. dollar. Risk premiums derived from the choice under uncertainty model and the GARCH specification are used to construct the risk- adjusted return series. Results show that risk premiums have significant implications for the performance of filter rules. Further, even if investors can tolerate some risk, transaction costs can further eliminate most of the remaining profitable trading opportunities.

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Single and Multiple Portfolio Cross-Hedging with Currency Futures
(Multinational Finance Journal, 1997, vol. 1, no. 1, pp. 23-46)

Andrea L. DeMaskey
Villanova University, U.S.A.

This article presents empirical evidence on the effectiveness of currency futures cross-hedging with the portfolio model. Single and multiple cross-hedges for three minor European and three minor Asian currencies are examined. The performance of the cross-hedged portfolios is measured in terms of maximum possible variance reduction. Realistic simulations of cross-hedging effectiveness are used to determine how well the optimal portfolio strategy performs relative to not hedging or a naive cross-hedge. Results show that Asian currency risk cannot be minimized with single or multiple currency futures cross-hedges. Indeed, both the naive and portfolio strategies increase exchange rate risk to the hedger. Because of the diversification benefit, the multiple currency cross-hedge is superior in hedging performance to the single currency cross-hedge. However, a cross-hedge constructed with two different currency futures positions is as effective as one with five different futures contracts. While the cross-hedge ratios of the European currencies are unstable over time, cross-hedging effectiveness appears not to have been affected significantly.  

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Mean and Volatility Spillover Effects in the U.S. and Pacific-Basin Stock Markets
(Multinational Finance Journal, 1997, vol. 1, no. 1, pp. 47-62)

Y. Angela Liu
National Chung Cheng University, Taiwan
Ming-Shiun Pan
Shippensburg University, U.S.A.

This paper investigates the mean return and volatility spillover effects from the U.S. and Japan to four Asian stock markets, including Hong Kong, Singapore, Taiwan, and Thailand. The empirical results from examining the data for the period of 1984 to 1991 suggest that the U.S. market is more influential than the Japanese market in transmitting returns and volatilities to the four Asian markets. In addition, the observed spillover effects are unstable over time in the sense that the spillovers increase substantially after the October 1987 stock market crash. Furthermore, the evidence indicates that while the cross-country stock investing hypothesis cannot by itself explain the international transmissions of return and volatility, the market contagion also plays an important role in the transmission mechanism.

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Corporate Capital Structure and Regulation of Bank Equity Holdings: Some International Evidence
(Multinational Finance Journal, 1997, vol. 1, no. 1, pp. 63-80)

Jan Bartholdy
University of Otago, New Zealand
Glenn W. Boyle
University of Otago, New Zealand
Roger D. Stover
Iowa State University, U.S.A.

Using data from six OECD countries, we examine the proposition that the costs associated with shareholder-debt holder agency conflicts can be reduced by allowing banks to hold equity in the firms to which they lend. Although the sensitivity of leverage to potential wealth expropriation is indeed significantly lower in Japan than in the U.S., no observable difference exists between the U.S. and the non-Japanese countries where banks are permitted to hold corporate equity. This "Japan effect" does not appear to be due to the Japanese keiretsu structure. We conclude that any differences in the debt-agency relationship between Japan and the U.S. are unlikely to be due to differences in restrictions on bank equity holdings.  

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