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The study investigates the relationship between stock indices (namely US (S&P500), India (NIFTY 50), and Brazil (IBOVESPA), crypto-assets (Bitcoin, Ethereum, and Ripple), and COVID-19 pandemic. The correlation and wavelet coherence analysis is employed to get an intuition of the strength of relationships between the stock indices, cryptocurrencies, and COVID cases/deaths. The paper finds that initially there was a negative relationship between cryptocurrencies and COVID-19 cases/deaths; however, eventually, with time it became positive. The traditional stock market indices of the US, India, and Brazil are found to have a positive relationship with COVID-19 cases/deaths. The stock markets are found to be more sensitive with a greater degree of coherence and react quickly. The study supports that hedging can be done using the assets like stock indices, and cryptocurrencies against the uncertain times raised by the pandemic.

Keywords: Cryptocurrencies, Stock Market Indices, Wavelet Coherence Analysis, COVID-19

JEL Classification: G10, G15, E50, C13

To cite this paper:

Muneer Shaik (2022). The Empirical Study of the Relationship between Stock Indices, Crypto Assets, and COVID-19 using Wavelet Coherence Analysis. Journal of Quantitative Finance and Economics. 4(1), 1-16

The significance, nature and direction of the effect of inflation on economic growth and macroeconomic stability are contentious both in theory and empirical analysis. This paper examines the causal relationship between inflation and macroeconomic variables - interest rate, exchange rate, money supply, GDP and fiscal deficit - in India over the period 1986 to 2020 applying the vector correction (VECM) estimation method. The macro variables are stationary at first difference and a cointegrating and causal relationship exists between the wholesale price index and interest rate, exchange rate, GDP, broad money and gross fiscal deficit. The VECM estimates reveal that money supply and GDP are the most important macro variables in explaining the variation in inflation. The estimated error correction term shows that the short-run disequilibrium is corrected by about 20% every period towards the long-run equilibrium. The impulse response results show that inflation responds positively to money supply from the start to the 9th period. To promote economic growth and keep inflation low, money supply and budget deficits need to be rationalised.

Keywords: GDP, inflation, interest rate, exchange rate, money supply, fiscal deficit, VECM estimation

To cite this paper:

T. Lakshmanasamy (2022). Inflation and Macroeconomic Performance in India: Vector Error Correction Model Estimation of the Causal Effects. Journal of Quantitative Finance and Economics. 4(1), 17-37.

The main aim of this paper is to examine the determinants of the capital structure of non-financial firms of South Asian developing countries (Pakistan, Sri Lanka, and India). A total of 78 Pakistani firms, 279 Indian firms, and 123 Sri Lankan firms were selected for the period of 10 years (2009-2017). Eight different (tangibility, profitability, size, liquidity, NDTS, tax, volatility, and growth) firm-level determinants were used as independent variables, and three different proxies of leverage (long-term debt, short-term debt, and total debt) were used as dependent variables. The paper used panel regression model analysis in examining the capital structure. The key results show that tangibility, profitability, tax, volatility, and NDTS are the main factors in explaining the variation of the selected capital structure. The findings were also similar with predictions of the pecking order, agency cost, and Static trade-off theories which indicate that models of the capital structure of the Western world and modern finance theories are valid for South Asian developing economies. To the best knowledge of the authors, this is the very first study that examines the capital structure determinants of Pakistani firms with a contrast of Sri Lankan and Indian firms by utilizing the most recent data. Also, this paper going to prove that similar factors influence the choice of the capital structure of companies in emerging economies as determined for companies in the developed countries.

Keywords: Capital Structure, Karachi Stock Exchange, Non-debt Tax, Pecking Order Theory, Static Trade-off Theory

JEL classification: C22, G32, O16, O53

To cite this paper:

Bab Shah, Muhammad Arif Gujjar & Ghazal Tunio (2022). Determinants of Capital Structure: Evidence from South Asian Emerging Economics. Journal of Quantitative Finance and Economics. 4(1), 39-64.

The paper aims to assess the market efficiency of Renata Ltd in the weak form by analyzing monthly returns ranging from December 2007 to April 2021. Past literature on the same topic uncovered the non-existence of efficiency in the weak form in the Dhaka Stock Exchange. Initially, a descriptive analysis was done using the 4 moments of Renata Ltd and the Dhaka Stock Exchange broad market exchange. A graphical analysis using P-P and Q-Q plots rejected the assumption that the returns of Renata Ltd come from a normal distribution. This was further supported by Jarque-Bera and Shapiro- Wilk tests of normality which also rejects the null hypothesis of the returns of Renata Ltd having come from a normal distribution. Graphical tests of autocorrelation were made to uncover the presence of any correlation between returns of Renata Ltd, which was found to not exist. Thus, we can assert that there is no presence of serial correlation, and therefore, the market is efficient in the weak form according to the graphical analysis of correlograms. To quantifiably test the presence of a random walk effect, the Durbin-Watson, Breusch Godfrey, Portmanteau, runs, Augmented Dickey-Fuller (ADF) and variance root tests were undertaken. All tests support the fact that Renata Ltd.’s return does follow a random-walk process, implying the existence of weak form market efficiency.

Keywords: EMH, random-walk, ADF, Breusch Godfrey, P-P, Durbin Watson, Portmanteau, unit root, Jarque-Bera, Shapiro-Wilk, QQ, variance-root, structural break

JEL code: C01, C22, C40, C50, C58, O16, P34

To cite this paper:

Zaeem-Al Ehsan (2022). An Empirical Analysis on the Weak from Market Efficiency in the Bangladeshi Pharmaceutical Industry– A Case Study of Renata Ltd. Journal of Quantitative Finance and Economics. 4(1), 65-83.

We provide simple sufficient conditions for the numerical representation of consumer preferences used in demand theory.

Keywords: consumer preferences, utility function, weakly monotonic, straight-line property

JEL codes: A23, D01, D11.

To cite this paper:

Somdeb Lahiri (2022). Simple Sufficient Conditions for the Existence of a Utility Function Representing Consumer Preferences. Journal of Quantitative Finance and Economics. 4(1), 85-88.

The purpose of the study was to access the adoption of digitalization tools for accounting purposes by SMEs in Tubah Sub Divsion. Research questions were answered by formulating a set of hypotheses. A quantitative approach was used. Relevant data was collected through structured questionnaire. Subjects for the study consisted of 60 business men selected from the villages that make Tubah Sub Division. The questionnaire was distributed to business men of the locality. SPSS version 26 and Microsoft Excel 2019 has been used to for data analysis. Both descriptive and inferential statistics were used for data analysis. The statistical tools were aligned with the objective of the research. For this purpose, cluster bar charts and percentages were computed and substantively interpreted. Inferential statistics like Pearson product correlation coefficient (r) and linear regression were used to determine if there is a significant positive relationship existed between the independent variables (basic accounting software, invoicing software and business bank account) and dependent variables (accounting purposes). Analysis and interpretations were made at 0.05 level of significance. The hypotheses were tested using linear regression which gave a coefficient of determinant (adjusted R2of 0.946) indicating that 94.6% Change in accounting purposes is cause by digitalization tools. Given the fact that the probability corresponding to the F value is 0.001, it means that we would be taking a 0.01% risk in assuming that the null hypothesis (digitalization tools does not have a significant effect on the accounting purposes of SMEs in Tubah Sub Division) is wrong. The study concluded that digitalization tools has important effect on accounting purposes. Therefore, it was recommended that SMEs should try to improve on their information technology since it is capable of contributing positively to the accounting information system.

Keywords: Basic Accounting Software, Invoicing Software, Business Bank Account Digitalization.

To cite this paper:

Dadem Kemgou Edouard Guilaire, Peter Ngek Shillie & Dorine Neitebef Sengla (2022). Adoption of Digitalization Tools for Accounting Purposes by SMEs in Tubah Sub Division. Journal of Quantitative Finance and Economics. 4(1), 89- 97.

Economic development includes economic growth and social development. Infrastructure plays a critical role in economic growth and development. It is the result of direct investment in private industry and public facilities that include endogenous capital stock of knowledge, machines, computers, recordings, etc. Infrastructure requires maintenance and is subject to depreciation (the accounting companion of capital consumption allowance in economics) and obsolescence. The optimal reinvestment to maximize economic growth is derived and computed from the new capitalism, democracy, rule of law (CDR) model. Reinvestment is either private money that is tax deductible or government spending of taxation of private income. The optimal nominal reinvestment rate is found to be 21%. The optimal effective tax rate is calculated as equal to the optimal total reinvestment rate minus the private tax-deductible reinvestment rate. Economic reinvestment is a collaboration between private and government sectors.

Keywords: Taxation; Economic growth; Economic development; Reinvestment capital; Innovation; Entrepreneurship elasticity of growth.

JEL classification: E02, P16

To cite this paper:

Dennis Ridley (2022). Optimal Tax Rates for CDR growth and Economic Development: A National Collaboration. Journal of Quantitative Finance and Economics. 4(1), 99-114.

The estimation risk of the covariance matrix in portfolio selection often leads to poor out-of-sample performance, especially when the number of assets is large compared to the observation period. Shrinking the covariance matrix to a particular target which often based on financial theory has been used to reduce the standard errors of the estimates. In this paper, we propose to shrink the off-diagonal elements of the inverse covariance matrix to zeros in the estimation of the covariance matrix, the sparsity structure of the inverse covariance matrix imply that some of the assets are conditionally independent. Simulation study and empirical data analysis show that the new strategy based on sparse inverse covariance constraints often perform better than strategies with existing shrinkage estimates in terms of out-of-sample Sharpe ratio, variances and turnovers. In addition, the algorithm and the convergence rate of arriving the sparsity structure in the inverse covariance matrix has been provided.

Keywords: Portfolio selection, Estimation risk, Inverse covariance, Sparsity, Conditional independence.

JEL classification: G11

To cite this paper:

Jinjin Hu (2022). Portfolio Selection with Sparse Inverse Covariance Matrices. Journal of Quantitative Finance and Economics. 4(1), 115-132.