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Southern University and A&M College
College of Business E-Journal

Current Issue

 

Summer 2017 Volume XII, Issue II

I.  Central Bank Independence: An Examination of Monetary and Economic Stability through Ordinary and Extraordinary Times"

  

Abstract

 

The idea of central bank independence (CBI) has been widely accepted over the last several decades by many countries around the world, both developed and developing. As such, many countries around the world granted autonomy to their central banks during the 1980s and 1990s. Although the majority of past studies have primarily examined the impact of central bank independence on inflation, there is only now sufficient date to empirically determine whether many of these claims are true. This study examines central bank independence over the long-term (1960 to 2015) to determine to what extent central bank independence has helped to ameliorate not only inflation, but interest rates and unemployment in Latin America, Asia, and selected developed countries. 

 

  by

Dr. Carroll H. Griffin
Assistant Professor of International Business
Georgia Gwinnett College
Lawrenceville, Georgia

 &

Dr. Yun Cheng
Assistant Professor of Accounting
University of West Georgia
Carrollton, Georgia

  

Download the full article.

 

II.      China Direct Real Estate and the General Stock Market Dynamic

 

Introduction
 

China's real estate market is one of the biggest recipients of foreign direct investment in China (Fung, Huang, Liu and Shen, 2006). In our research period from 2008-2015, the average quarterly return on direct real estate is about 2%. Wang and Wang (2012) report housing price appreciation rates from 1999 – 2010 for 10 Chinese cities located throughout China to range from 161% to 431% with a median of about 265%.  They believe that the housing price appreciation rate in China is likely the highest in the world over this period.  The rapid appreciation in housing prices caused concerns about a possible real estate bubble. The Wall Street Journal published an extensive article about the bubble in April, 2014 (Davis & Fung, 2014). The Shanghai composite index rose from around 2000 in June, 2014 to close to 5000 by May, 2015. This raised concern about a stock market bubble (Smith, 2014).

China's real estate market has unique characteristics. All real estate in China was owned and managed by the government under the central planning economic regime before 1988 (Fung, Huang, Liu, and Shen 2006). The 1988 Constitutional Amendments separated the land ownership and land use right. One primary difference between the meaning of real estate in China and the meaning in other developed economies is that the term real estate in China refers only to land use rights plus the ownership of the improvements on the land. The state remains the owner of the land itself. The lease terms of the land range from 50 to 70 years. Here we are only referring to mainland China. Hong Kong's real estate ownership system is similar to that of the United Kingdom. The Chinese real estate securities market is still relatively undeveloped. There is no REIT market in China.

The puzzling rise of the Chinese stock market and the decline in the direct real estate market have motivated us to conduct research on this unusual phenomenon.

Stock price should be determined by the net present value of future dividends according to the dividend discount model which incorporates future growth of dividends and an equity risk premium. In addition, many factors can affect stock prices, including money supply (Hamburger & Kochin, 1972; Homa & Jaffee, 1971; Keran, 1971; Rapach 2001), interest rate (Belke & Beckmann 2015; Andries,  Ihnatov & Tiwari 2014 ), and risk (Sircar & Sturm 2015).   Though many researches have doubted the linkage between these three factors and stock price (Kraft & Kraft, 1977; Cooper,1974; Pesando, 1974; Rozeff, 1974 ).

This research is not attempting to identify stock price determinants. Our goal is to identify whether the recent China stock market rally is supported by company underlying profitability, or is caused by investors’ need for an alternative investment channel other than direct real estate. China has a strong culture of saving. The average Chinese household socks away about 30% of its disposable income (Roberts, 2015).  If direct real estate is no longer the place to put money, people need an alternative.  This change in investment strategy could have contributed to the stock market rise. A sluggish direct real estate market and a flourishing general stock market at the same time might suggest this change of momentum in the two markets.  Or the stock market rally could simply be attributed to irrational speculation with borrowed money despite increasing evidence of stress in the financial sector and a slowing economy as Smith (2014) pointed out. If this is the case, we could observe stock price increases despite slow or negative profit growth. We hope our research results will help a prudent investor’s decision making.

 

by

Dr. Carroll H. Griffin
Assistant Professor of International Business
Georgia Gwinnett College
Lawrenceville, Georgia

 &

Dr. Yun Cheng
Assistant Professor of Accounting
University of West Georgia
Carrollton, Georgia

 

 

 

Download the full article.

 

Authors' biographies