nep-sea New Economics Papers
on South East Asia
Issue of 2018‒06‒11
nineteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Analysis of the ‘Dutch Disease’ Effect on the Selected Resource-Rich ASEAN Economies By Hiroyuki Taguchi and Soukvisan Khinsamone
  2. Matchmaking: Establishment of state-owned holding companies in Indonesia By Kyunghoon Kim
  3. Performance and risk: logistics and transportation company in Malaysia By chew, Weisheng
  4. The Impact of Institutional Ownership and a Firm's Size on Firm Value: Tax Avoidance as a Moderating Variable By Vince Ratnawati
  5. Time preferences between individuals and groups in the transition from hunter-gatherer to industrial societiesm By Yayan Hernuryadin; Koji Kotani; Yoshio Kamijo
  6. ASEAN Economic Community: Theoretical versus Practical Economic Integration By Setyastuti, Rini; Adiningsih, Sri; Widodo, Tri
  7. Systemic Crisis and Growth Revisited: Has the Global Financial Crisis Marked a New Era? By Sven Steinkamp; Frank Westermann
  8. Cognition and SES Relationships Among the Mid-Aged and Elderly: A Comparison of China and Indonesia By John Strauss; Firman Witoelar; Qinqin Meng; Xinxin Chen; Yaohui Zhao; Bondan Sikoki; Yafeng Wang
  9. Factors Affecting Variation in SMES' Export Intensity By Mohamad D. Revindo; Christopher Gan
  10. Market integration from measurement to economic analysis: a survey of the recent literature By Federico, Giovanni
  11. 호주·뉴질랜드의 대아시아 경제협력 현황과 시사점 (Australia and New Zealand’s Ties with Asia and Their Implications) By La, Meeryung; Shin, Mingeum; Shin, Minlee
  12. Two-Level Games and Australia's Defence Procurement: The Case of Land-Based Anti-ship Missiles By Gregory Vincent Raymond
  13. The 4th Industrial Revolution Strategy and Cooperation in China, India and Singapore By Cho, Choongjae; Song, Youngchu
  14. Dynamic connectedness of global currencies: a conditional Granger-causality approach By Tan T. M. Le; Franck Martin; Duc K. Nguyenc
  15. West Kalimantan Integrated Border Area Development By Lord, Montague; Chang, Susan
  16. Pre-Feasibility Study of Sabah-North Kalimantan Cross-Border Value Chains By Lord, Montague; Chang, Susan
  17. Korea's Engagement Opportunities with the African Consumer Market through Industrial Zones By Park, Youngho; Jung, Jae Wook; Kim, Yejin
  18. Asymmetric Risk Impacts of Chinese Tourists to Taiwan By Chia-Lin Chang; Shu-Han Hsu; Michael McAleer
  19. Why did Warrant Markets Close in China but not Taiwan? By Wing-Keung Wong; Hooi Hoi Lean; Michael McAleer; Feng-Tse Tsai

  1. By: Hiroyuki Taguchi and Soukvisan Khinsamone
    Abstract: This article examines the applicability of the Dutch Disease hypothesis by using a vector auto†regression model, focusing on the resource†rich and middle†income economies in the Association of Southeast Asian Nations. The empirical study found that the latecomers of Lao People's Democratic Republic and Myanmar seemed to suffer from the Dutch Disease over the sample period for 1970–2015; and the forerunners of Indonesia and Malaysia, on the other hand, appeared to have no Dutch Disease effect at least in the current period of 1997–2015, although Indonesia had experienced the Dutch Disease in the previous period of 1970–1996. The lessons from the forerunners' experiences in order for the latecomers to escape from the Dutch Disease are to establish some funding system of allocating resource revenues for investment projects; to diversify domestic industries through improving business environments; and to improve institutional quality to reinforce resource governance.
    Keywords: Dutch Disease, ASEAN, vector auto-regression model, natural resources, resource fund
    Date: 2018–05–21
  2. By: Kyunghoon Kim
    Abstract: Under the government of President Joko Widodo, Indonesia's state†owned enterprises (SOEs) have become the driver of the national development strategy. The current administration is actively using SOEs to conduct development projects based on the belief that SOEs are able to fix market failures and support the fiscally constrained government. In order to strengthen the role of SOEs, the Indonesian government is pursuing a medium†term plan of creating sector†based holding companies. The government expects that these state†owned holding companies (SOHCs) will enable SOEs to expand investment and benefit from synergies. However, considering political hurdles in implementing this policy, the process of establishing SOHCs is expected to advance gradually. The government also continues to face challenges clarifying and communicating the rationale behind creating SOHCs. This paper examines the current political economic context of SOE ownership reorganisation in Indonesia and diverse views on the expected consequences of forming SOHCs.
    Keywords: corporate governance, economic nationalism, state capitalism, state-owned enterprise, state-owned holding company
    Date: 2018–05–21
  3. By: chew, Weisheng
    Abstract: The purpose of this study is to analyse the performance of logistics company in Malaysia during five years. The analysis is applied on the sample of logistics company in Malaysia over the period between 2012 and 2016. This study using a descriptive analysis such as credit risk, liquidity risk, operational risk and also economic environment as to compare the profitability and liquidity of the logistics company. The finding show that the company profitability can be influenced by the operational risk whereas liquidity can have influenced by the economic environment which is exchange rate.
    Keywords: Profitability, Liquidity, Operating Margin, Exchange Rate
    JEL: G32
    Date: 2018–05–19
  4. By: Vince Ratnawati (Economic Faculty, Universitas Riau, Pekanbaru, Indonesia Author-2-Name: Azhari.S Author-2-Workplace-Name: Economic Faculty, Universitas Riau, Pekanbaru, Indonesia Author-3-Name: Desmond Freddy Author-3-Workplace-Name: Economic Faculty, Universitas Riau, Pekanbaru, Indonesia Author-4-Name: Nita Wahyuni Author-4-Workplace-Name: Economic Faculty, Universitas Riau, Pekanbaru, Indonesia)
    Abstract: "Objective –The objective of this study is to investigate how institutional ownership and firm size affect firm value. The study also investigates the moderating effect of tax avoidance on the relationship between institutional ownership and the size of a firm on its value. Methodology/Technique –A model was developed and tested using a sample of 66 manufacturing companies listed on the Indonesian Stock Exchange between 2012 and 2014. Findings –The data was collected and analysed using a least square regression and moderated regression analysis. The analysis shows that institutional ownership and firm size affect firm value. The results also indicate that tax avoidance moderates the effect of institutional ownership and that of a firm's size on its value"
    Keywords: "Institutional Ownership, Firm Size, Tax Avoidance, Firm Value"
    JEL: G30 G32 G39
    Date: 2018–03–21
  5. By: Yayan Hernuryadin (School of Economics and Management, Kochi University of Technology); Koji Kotani (School of Economics and Management, Kochi University of Technology); Yoshio Kamijo (School of Economics and Management, Kochi University of Technology)
    Abstract: Three societies of the hunter-gatherer, the agrarian and the industrial represent the course of human history for cultural and economic development. In this course, each society exhibits distinct cultures and daily life practices that shape human behaviors and preferences, characterizing temporal actions and consequences at individual and group levels. We examine individual and group time preferences as well as their relation across the three societies. To this end, we conduct a field experiment of eliciting individual and group discount factors in the societies of Indonesia: (i) the fisheries, (ii) the farming and (iii) the urban ones as a proxy of the hunter-gatherer, the agrarian and the industrial, respectively. We find that both individual and group discount factors are the lowest (highest) in the fisheries (agrarian) society among the three, while those in the urban are in the middle. We identify that the determinants of group discount factors differ across societies; members of the lowest and middle discount factors in a group play an important role in forming a group discount factor in fisheries societies, while only the member with the middle discount factor is a key in agrarian and urban societies. Overall, our results suggest that individual and group discount factors non-monotonically change as societies transition from fisheries to agrarian and from agrarian to urban ones, and comparatively shortsighted people (the lowest and middle) are more influential than farsighted people in forming group time preferences.
    Keywords: discount factors, individual and group time preferences, fisheries, farming, urban
    Date: 2018–06
  6. By: Setyastuti, Rini; Adiningsih, Sri; Widodo, Tri
    Abstract: ASEAN countries have committed achieving the ASEAN Economic Community (AEC) with the timeline set at 2015. Policy measures are being implemented based on the AEC Blueprint agreed upon 2007. However, concerns have been expressed that the regional integration project’s 2015 deadline will be missed due to an overly ambitious timeline and there are wide development gap in this region. This article critically reviews the progress that has been made, some of the potential problems, and suggests the next step for the AEC.
    Keywords: ASEAN, integration, potential problems, AEC
    JEL: F14 F17
    Date: 2018–05–17
  7. By: Sven Steinkamp (Institute of Empirical Economic Research, Osnabrueck University, D-49069 Osnabrueck, Germany); Frank Westermann (Institute of Empirical Economic Research, Osnabrueck University, D-49069 Osnabrueck, Germany)
    Abstract: Occasional crises have been shown to be part of growth enhancing mechanism (see Rancière, Tornell and Westermann, 2008). In this paper, we document that neither the stereotypical case study of India vs. Thailand, nor the benchmark growth-regression in this earlier research support this result anymore when updating the sample by one decade that includes the Global Financial Crisis, 2007/8. We analyze the time-varying nature of this relationship in rolling regressions and an historical dataset. In the subset of countries with enforceability problems, we find that the link between occasional crisis, measured by the negative skewness of credit growth, and per-capita output growth still remains intact.
    Keywords: Long-Term Growth; Systemic Crisis; Financial Liberalization
    JEL: F34 O43 G01
    Date: 2018–05–29
  8. By: John Strauss; Firman Witoelar; Qinqin Meng; Xinxin Chen; Yaohui Zhao; Bondan Sikoki; Yafeng Wang
    Abstract: In this paper, we use a measure of fluid intelligence, an adaptive number series test, to measure that part of cognition for respondents in two developing countries: China and Indonesia, both with very low educated elderly populations. This test was specially adapted by us and our collaborators from measures used in the United States to better fit such populations. We also use a measure of episodic memory and one measuring mental state intactness and examine their distributions and then the socio-economic gradients associated with each, concentrating on gender differences and how those change as SES and variables measuring community development are added. We find large variation in our cognition measures in both countries, even among those 60 and over with no schooling. We explore the bivariate socio-economic gradients for these measures, separately for different age groups: 45-59 and 60 and above. We find strong gender, education and rural-urban gradients. Of these, the education gradient is the strongest, followed by the rural-urban gradient. China has a stronger rural-urban gradient than Indonesia, which is associated with the hukou residential permit system in China. We find a significant, negative multivariate differential for women, that is significantly larger in China than Indonesia. The gender differential in both countries is smaller for the mid-aged, 45-59, for whom the gender schooling differentials are smaller. The gender differential declines substantially, and the China-Indonesia differential disappears once we control for SES characteristics. Adding community measures related to mean schooling and asset levels does not affect the gender differential. Schooling levels are monotonically and significantly related to higher levels of cognition for all three of the variables we use. The magnitudes of the schooling coefficients are relatively large. Higher log of household per capita expenditure (pce) is positively associated with cognition, more so in China. Other SES characteristics such as height, are also positively related to the cognition measures, again more strongly so in China. Rural respondents have substantially lower levels of cognition measures, with a significantly stronger gradient in China. Mean community level schooling and log pce are also positively related to cognition outcomes, especially for elderly women.
    JEL: I15 O53
    Date: 2018–05
  9. By: Mohamad D. Revindo (Research Associate, Institute for Economic and Social Research, Faculty of Economics and Bussiness , University of Indonesia, Jakarta); Christopher Gan (Professor in Accounting and Finance, Faculty of Agribusiness and Commerce, Department of Finance and Business System, Lincoln University, New Zealand)
    Abstract: Small and Medium-sized Enterprises (SMEs) are more constrained to participate in export market than their large counterparts despite various export assistance provision by the government. Extant literature on SME internationalization mostly focus more on how non-exporting SMEs can become exporters than on how exporting SMEs can sustain and expand their export. This study aims to investigate the factors affecting SMEs’ export intensity with reference to the case of Indonesia. Fractional-logit regressions were used to identify the influence of export-exhibiting factors, export-inhibiting factors, and firm and owner characteristics on SMEs’ export intensity. The evidences were collected from 497 SMEs in seven provinces in Jawa, Madura and Bali regions. The findings show that SMEs’ export intensity is affected by some firm characteristics including firm age and total employees. Export intensity is also affected by some exhibiting factors including owners’ overseas and MNC/exporting firm work experience, central government agencies’ assistance, network relationships with non-government actors, location, export market of choices and years of exporting. By contrast, export intensity is adversely affected by perceived difficulties in overcoming informational and human resources barriers, distribution, logistics and promotional barriers, financial barriers, foreign government barriers, procedural barriers and price barriers. The policy and managerial implications of the findings are discussed.
    Keywords: SMEs — internationalization — export intensity — export barriers — Indonesia
    JEL: F23 L25 M13 M16 O17
    Date: 2018–05
  10. By: Federico, Giovanni
    Abstract: This paper surveys the literature on market integration. It builds on a previous survey on the integration of European markets (Federico 2012), extending the discussion to integration of markets in Asia and across oceans, and dealing also with the literature on causes and effects of integration. It argues that a lot of progress has been made, but still we are far from a comprehensive view of the issue. The most pressing needs are the definition of an implementable method to assess gains from integration and the collection of new data, most notably on products and areas other than cereals in Europe and on trade costs.
    Keywords: Development; market integration
    Date: 2018–04
  11. By: La, Meeryung (Korea Institute for International Economic Policy); Shin, Mingeum (Korea Institute for International Economic Policy); Shin, Minlee (Korea Institute for International Economic Policy)
    Abstract: 본 연구는 호주·뉴질랜드의 경제적, 전략적 중요성을 살펴보고, 호주·뉴질랜드와의 협력 증대방안을 모색하고자 하였다. 이를 위하여 아시아 주요국을 중심으로 호주와 뉴질랜드의 경제관계 및 통상전략을 분석하고, 한-호주, 한-뉴질랜드 경제관계 및 기발효된 FTA를 점검하였다. 더 나아가 양국간 경제협력 확대 방안을 교역, 서비스 및 투자, 농업, 금융, 정부간 협력 등 다방면에서 모색하였다. Australia and New Zealand are classified as developed countries, but hitherto they have not been among the primary concerns of the Korean economy, due to their small populations, and the high logistics costs resulting from their isolated geographic location. When considering the areas of politics, diplomacy, and value chains in the Asia-Pacific region, however, Australia and New Zealand are countries that deserve great notice. Australia and New Zealand support the rules-based international order and multilateral trading system, and are key participants in the CPTPP and RCEP. They are among the most important countries that will influence the shape of the regional order. Australia and New Zealand also share a complementary industrial structure with Korea, which can provide mutual benefits through long-term economic cooperations. Therefore, this study examines the economic and strategic importance of Australia and New Zealand, and investigates ways for Korea to strengthen its ties with Australia and New Zealand.
    Keywords: Australia; New Zealand; ties with Asia
    Date: 2018–05–17
  12. By: Gregory Vincent Raymond
    Abstract: As a country largely free of the corruption that bedevils the defence procurement of many of Australia's Asian neighbours, it is generally assumed that Australia's national security interests, together with value for money, are the paramount criteria for Australia's defence procurement. This is an assumption, however, that deserves critical interrogation, particularly with respect to the influence that domestic politics can have on strategic decisions. This article investigates the Australian government's 2016 decision to acquire land†based anti†ship missiles. To do so, it adapts Putnam's two†level game to a defence policy context, enabling the incorporation of both realist and domestic political factors, including the influence of interest groups. I find a plausible case that the influence of the resources sector and constituents of Australia's northwest, as well as the corporate interests of the Australian army in asserting a greater role in Australian defence strategy, may have been significant in the decision.
    Keywords: defence, Australia, procurement, missiles, army
    Date: 2018–05–21
  13. By: Cho, Choongjae (Korea Institute for International Economic Policy); Song, Youngchu (Korea Institute for International Economic Policy)
    Abstract: This study focuses on analyzing China, India and Singapore's driving capability for the 4th IR, related national policies, plans, or strategies, etc. In addition, this study suggests implications and directions for the development of policies related to the 4th IR by the Korean government and the strengthening of cooperation with each of these three countries. In conclusion, we presents the following cooperation directions and policy tasks in respect to the three countries above. First, we need to enhance selective and strategic cooperation with China in the aspects of competition and response via the following strategies: 1) strengthening R&D projects for original technologies in new technology and industry areas, thus focusing on early commercialization and standardization; 2) developing strategies to actively utilize digitalized consumers in China and protecting domestic digital consumers and cross-border personal information; 3) advancing into the areas of 5G, smart manufacturing and robot-related fields in China; 4) enhancing collaboration in terms of internationalization of innovative entrepreneurial ecosystems; 5) pursuing agreements to address the issues of technology deception and technical protection. Second, we need to enhance all-round convergence and win-win cooperation with India through the following channels: 1) early enhancement of core SW technologies such as artificial intelligence, embedded and cloud computing via using India's excellent SW, IT service capability; 2) taking advantage of India's Big Data resources, including Aadhaar, the world's largest digital personal authentication system; 3) participating in smart manufacturing, digital infrastructure development with new technologies and products related to smart city initiatives, cooperation between start-ups in both countries; 4) to do this, we will need to consider utilizing the Vision Group of Korea-India Future Strategy; and 5) creating a Korea-India Innovation Venture Fund. Lastly, with Singapore, we need to strengthen innovation cooperation in policies and systems, education, R&D, and entrepreneurial ecosystems that underpin the 4th IR.
    Keywords: 4th industrial revolution strategy; China; India; Singapore
    Date: 2018–04–03
  14. By: Tan T. M. Le (Univ Rennes, CREM, CNRS, UMR 6211, F-35000 Rennes, France, and Hue University, Vietnam); Franck Martin (Univ Rennes, CREM, CNRS, UMR 6211, F-35000 Rennes, France,); Duc K. Nguyenc (Ipag Business School, Paris, France)
    Abstract: Conditional granger causality framework in Barnett and Seth (2014) is employed to measure the connectedness among the most globally traded currencies. The connectedness exhibits dynamics through time on both breadth and depth dimensions at three levels: node-wise, group-wise and system-wise. Overall, rolling connectedness series could capture major systemic events like Lehman Brothers'collapse and the get-through of Outright Monetary Transactions in Europe in September 2012. The rolling total breath connectedness series spike during high-risk episodes, becomes more stable in lower risk environment and is positively correlated with volatility index and Ted spread, thus, can be considered as a systemic risk indicator in light of Billio et al. (2012). Global currencies tend structure into communities based on connection strength and density. While more links are found related to currencies from emerging markets, G11 currencies are net spreaders of foreign exchange rate returns. Finally, hard currencies including Canadian dollar, Norwegian Krone and Japanese Yen frequently present among the top most connected, though the centrality positions vary over time.
    Keywords: conditional granger causality, exchange rates, connectedness, systemic risk
    Date: 2018–04
  15. By: Lord, Montague; Chang, Susan
    Abstract: This study identifies concrete and high-impact projects that will advance implementation of an integrated border area development program for West Kalimantan. This part of the study determines what the integrated border economic area should look like. The process involves carrying out a scoping study in the province and, based on those findings, preparing a concept report on program design and how it should be prepared and implemented.
    Keywords: West Kalimantan, Indonesia, trade, cross-border, value chain, value chains, project appraisal, appraisal, industry analysis, pre-feasibility, concept paper, ship building, rubber, palm oil, eco-tourism
    JEL: F10 F13 F14
    Date: 2018–02–22
  16. By: Lord, Montague; Chang, Susan
    Abstract: This study maps the optimal configuration of North Kalimantan–Sabah cross-border trade and investment in goods and services; and, concurrently, it provides a preliminary (pre-feasibility) design of a border area development plan for the two territories. The options for moving project proposals forward are elaborated in sufficient detail and contain the needed concrete measures that will permit the overall collaboration program to move through subsequent stages of development into the final implementation and operational phases.
    Keywords: sabah, Malaysia, North Kalimantan, Kalimantan, Indonesia, Feasbility, Pre-Feasibility, Project Appraisal, Appraisal, trade, cross-border, value chain, value chains
    JEL: F1 F14 F17
    Date: 2018–10–01
  17. By: Park, Youngho (Korea Institute for International Economic Policy); Jung, Jae Wook (Korea Institute for International Economic Policy); Kim, Yejin (Korea Institute for International Economic Policy)
    Abstract: Unlike previous discussions on Africa that have focused on its commodities, recent focus has shifted to the potential of Africa's consumer market. Africa's remarkable economic growth and a population of 12 billion, which continues to expand in line with urbanization, has encouraged the development of the middle-income class. The increasing number of modern retail stores and supermarkets in the major cities illustrate the growth of Africa's consumer market. Yet, Africa's consumer market remains fragmented because of the poor logistical infrastructure, complex trade regulations, and political hostilities that limit trade between countries. As a result, inter-Africa trade remains at 12% of Africa's total trade while that of Western Europe and the Asia Pacific is at 61% and 39% respectively. Moreover, the majority of manufactured goods are imported because there is a lack of skills, equipment and knowledge as well and land ownership issues among other factors. The influx of cheap imported goods across a wide range of industries covering textiles, plastics, machinery, electronics, construction materials and others have also hindered the growth of the manufacturing sector in Africa because of its low cost competitiveness. Despite the merits of engaging with Africa, the trade volume between Korea and Africa has remained minuscule because of geographical and logistical barriers. Against this background, utilizing industrial zones in Africa would be an effective way for Korea to engage directly with the African consumer market. Eastern Africa, Ethiopia in particular, should be prioritized as an entry point because of its relative political stability, improving business environment and intensity of intra-regional trade. In terms of focus industries, although agriculture, textiles and minerals are the most consumed and exported items yet in Africa, Korea should prioritize production of machinery, petro-chemical products and non-mineral goods because better competitiveness in these areas.
    Keywords: Korea; African consumer market; industrial zones
    Date: 2018–03–26
  18. By: Chia-Lin Chang (National Chung Hsing University, Taiwan); Shu-Han Hsu (National Chung Hsing University, Taiwan); Michael McAleer (Asia University, Taiwan)
    Abstract: Since 2008, when Taiwan’s President Ma Ying-Jeou relaxed the Cross-Strait policy, China has become Taiwan’s largest source of international tourism. In order to understand the risk persistence of Chinese tourists, the paper investigates the short-run and long-run persistence of shocks to the change rate of Chinese tourists to Taiwan. The daily data used for the empirical analysis is from 1 January 2013 to 28 February 2018. McAleer’s (2015) fundamental equation in tourism finance is used to link the change rate of tourist arrivals and the change in tourist revenues. Three widely-used univariate conditional volatility models, namely GARCH(1,1), GJR(1,1) and EGARCH(1,1), are used to measure the short-run and long-run persistence of shocks, as well as symmetric, asymmetric and leverage effects. Three different Heterogeneous AutoRegressive (HAR) models, HAR(1), HAR(1,7) HAR(1,7,28), are considered as alternative mean equations for capturing a variety of long memory effects. The mean equations associated with GARCH(1,1), GJR(1,1) and EGARCH(1,1) are used to analyse the risk persistence of the change in Chinese tourists. The exponential smoothing process is used to adjust the seasonality around the trend in Chinese tourists. The empirical results show asymmetric impacts of positive and negative shocks on the volatility of the change in the number of Group-type and Medical-type tourists, while Individual-type tourists display a symmetric volatility pattern. Somewhat unusually, leverage effects are observed in EGARCH for Medical-type tourists, which shows a negative correlation between shocks in tourist numbers and the subsequent shocks to volatility. For both Group-type and Medical-type tourists, the asymmetric impacts on volatility show that negative shocks have larger effects than do positive shocks. The leverage effect in EGARCH for Medical-type tourists implies that larger shocks would decrease volatility in the change in the numbers of Medical-type tourists. These results suggest that Taiwan tourism authorities should act to prevent the negative shocks for the Group-type and Medical-type Chinese tourists to dampen the shocks that arise from having fewer Chinese tourists to Taiwan.
    Keywords: Asymmetric risk; leverage; risk persistence; tourist revenues; conditional volatility models; Heterogeneous AutoRegressive (HAR) models
    JEL: G32 C22 C58
    Date: 2018–05–18
  19. By: Wing-Keung Wong (Asia University, China Medical University Hospital, Lingnan University); Hooi Hoi Lean (Universiti Sains Malaysia); Michael McAleer (Asia University, University of Sydney Business School, EUR); Feng-Tse Tsai (Asia University)
    Abstract: The paper bridges a gap in the literature by using moment analysis, CAPM statistics, stochastic dominance (SD) test, and volume analysis to examine investor preferences for warrants between China and Taiwan, and investigating why the market for warrants in China has to close while the market for Taiwan warrants is successful. Using moment analysis, it is shown that that buying China warrants has a higher likelihood of losses than its Taiwan counterpart. Using CAPM analysis, in general, both the Sharpe ratio and Jensen index for warrants from the Taiwan market are more reasonable, while that from the China market is too negative. On the other hand, the Treynor index for China warrants shows that China warrants are highly volatile. This could make investors avoid investing in China warrants which, in turn, could lead to its closure. Using SD analysis, though there is no arbitrage opportunity between the China and Taiwan warrant markets, it is shown that the markets for China and Taiwan warrants are not efficient, and second- and third-order risk averters prefer to invest in China warrants to warrants in Taiwan. This implies that the warrant issuers prefer to issue Taiwan warrants than China warrants. Using volume analysis, the China warrant market is much more active than the Taiwan warrant market. This could imply that there are more speculative activities in China than in Taiwan which, in turn, could lead to China’s decision to close its warrant market. The findings in the paper are useful for investors for investment decisions regarding Taiwan and China warrants, for academic analysis for modelling Taiwan and China warrants, and policy makers for policy making related to Taiwan and China warrants. In the future, China may rethink reopening warrant markets and learning from mature-covered warrant markets such as Taiwan how to inhibit excess speculation and educate warrant investors.
    Keywords: Moment analysis; CAPM statistics; Stochastic dominance; Volume analysis; Arbitrage opportunity; Market efficiency; Warrants; China market; Taiwan market
    JEL: G14 G15
    Date: 2018–05–25

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