Market Equilibrium Research Articles

Financial Integration and Variance Decomposition of Asian Stock Market: Evidence from India

Manuscript type: Research paper Research aims: International investments made in non-integrated economies provide benefits of portfolio diversification, but investment made in integrated economies may lead to oscillations due to volatility spillover. Therefore, the knowledge of market linkage of an economy is imperative for investors, as well as regulators. In this context, the present paper investigates the financial integration of the Indian stock market with China, Hong Kong, Japan, UK and USA. Design/Methodology/Approach: To examine the financial integration in the long run, closing daily indices of leading stock markets of respective countries have been analysed through the Johansen cointegration method over a period of 20 years from 2002 to 2022. The vector error correction model has been applied to examine whether market equilibrium can be restored after an infusion of shock. The short run linkage has been investigated through a causality test. Further the possibility of volatility spillover has been examined through variance decomposition and impulse response function. Research findings: The results show cointegration among the selected markets, which indicates the possibility of convergence towards market equilibrium in the long run. The stock markets of India and USA were observed to have a bidirectional causal relationship indicating lesser chances of benefits from international portfolio diversification. The results reveal the sensitivity of the Indian stock market to innovations in the UK and USA. However, no significant influence of the Hong Kong, Japanese, and Chinese stock markets has been observed on the Indian stock market. Further, the Indian stock market has a significant contribution to the volatility of other stock markets, except the Chinese stock market. Theoretical contribution/Originality: The present study is crucial owing to two prominent reasons. Firstly, the linkage between various financial markets is very dynamic and needs to be studied in the present context. Secondly, the linkage of Indian economy with other countries has increased manifolds in recent few years so it will be fruitful to analyse the linkage of Indian economy with other economies. Practitioner/Policy implications: The findings are useful to investors while designing international portfolios to reap diversification benefits. The results are fruitful for market regulatory bodies to mitigate the adverse impact of volatility spillover. Research limitation/Implications: The study can be extended to other markets, monthly data and different sub-periods

EKONOMI MATEMATIKA: BAGAIMANA FUNGSI LINEAR MENENTUKAN KESIMBANGAN HARGA PASAR

The primary objective of this scientific inquiry is to thoroughly investigate and expound upon the practical application and implementation of linear function equations within the domain of economic mathematics. The central focus lies in dissecting the intricate modeling of market equilibrium prices, with a specific emphasis on the assessment of consumer and producer surpluses associated with essential commodities, such as rice. The core methodology of this study involves an in-depth literature review, which serves as the backbone for understanding the nuances of market equilibrium price models and the nuanced application of linear equations within economic mathematics. The economic and business disciplines are often considered semi-precise sciences, demanding a nuanced blend of qualitative and quantitative analyses to achieve a comprehensive understanding of their multifaceted dynamics. In this context, quantitative analysis in economics and business invariably necessitates the utilization of mathematics as an indispensable tool. Hence, this study consciously adopts a quantitative research approach, a methodological process rooted in the systematic acquisition of knowledge using numerical data as a tool to dissect and analyze crucial information relevant to the subject matter. Delving into the intricacies of supply and demand laws through the lens of linear functions, the study ultimately concludes that the adoption of mathematical models grounded in linear functions holds the potential to effectively determine the demand and supply functions, especially concerning staple commodities like rice. Moreover, it proves instrumental in identifying and comprehending market equilibrium, furnishing invaluable insights that can significantly contribute to a nuanced understanding and effective management of economic phenomena. In essence, this research aims not only to contribute to the theoretical discourse in economic mathematics but also to provide practical insights that can inform decision-making processes within the realms of economics and business.

Minimum wage and corporate OFDI

Corporate OFDI can help firms fully utilize opportunities and resources on a global scale, enhancing their global competitiveness. However, the findings of this paper indicate that the minimum wage standards in the regions where firms are located can lead to a crowding-out effect on the level of outward foreign direct investment by causing wage levels to be above the market equilibrium wage level. Furthermore, this impact is more pronounced in non-state-owned enterprises and in firms located in regions with lower levels of marketization.

Informational rents and the excessive entry theorem: The case of hidden action*

AbstractEntry in a homogeneous Cournot‐oligopoly is excessive if there is business‐stealing. These findings assume that production costs reduce profits and welfare equally. If firms pay informational rents due to frictions in the employer–employee relationship, production costs partly reflect transfers, which do not alter welfare directly. We investigate the excessive entry theorem in the presence of rents. We find that informational rents can invalidate the theorem. Rents reduce profits and deter entry into the market equilibrium, while the socially optimal number of firms is not affected directly. The rent effect becomes stronger the lower the number of firms and can overcompensate the business‐stealing externality. As an example, we model a hidden action problem in which employees have an informational advantage after signing the contract with the firm. Insufficient entry occurs if entry costs are sufficiently high because they lower the number of firms and raise informational rents.

The European Market for Guarantees of Origin for Green Electricity: A Scenario-Based Evaluation of Trading under Uncertainty

Guarantees of Origin (GOs) were introduced in order to enhance transparency about the origin of green electricity produced in Europe, and to deliberately empower end-consumers to participate in the sustainable energy transition. The separation of electricity and the GO trade has resulted in a prosperous GO market that, however, has been characterized by non-transparency and opportunistic behavior. Historic price development has been opaque and can therefore not be used to forecast future GO prices. This paper, firstly, provides a thorough overview of the European GO market and an analysis of the historic price development; secondly, it proposes a model, the first of its kind, for determining future price developments of European GOs for different renewable energy technologies in different countries up to 2040. For household consumers, GO price determination is based on willingness-to-pay estimates from the literature, whereas for non-household consumers, the model introduces a novel approach to determine the willingness to pay for green electricity. Four different scenarios are considered (Status Quo, Sustainable Development, Full Harmonization, and Ideal Development) and annual GO data are used. The findings indicate that GO prices can be expected to increase on average in the next years, with prices ranging from 1.77 to 3.36 EUR/MWh in 2040. Sensitivity analysis shows that ‘WTP percentages’ have the highest influence on GO prices. It can be concluded that future GO prices will remain challenging to predict, even with the support of sophisticated models, due to the expected supply and demand-driven market growth affecting the market equilibrium prices for different GOs in different countries.

Empirical Analysis on Import Diversification of Major Livestock Commodities in Malaysia

The long-standing underperforming self-sufficiency status of major ruminant commodities in Malaysia signifies that the livestock sub-sector is confronting crucial import dependency status, particularly beef and mutton. The self-sufficiency indicated stagnating and even deteriorating trends over the years, stemming from a massive gap between domestic production and the demand requirement for meat products. Various efforts and strategies are implemented to expand local beef and mutton production, yet the performance remains insignificant. This crucial situation further urges the government to implement the liberalization of import quota for the two main meat commodities, aiming to provide meat supply based on current needs either at the industry or consumer level and further facilitate market equilibrium for meat products. Nevertheless, the import tendency has concentrated on a few dominant markets, globally. Previous studies suggested trade diversification is crucial for multiple reasons towards creating a more sustainable economy and food security. Therefore, this study identifies the status of trade diversification of primary livestock commodities and measures the association between trade diversification and economic performance in Malaysia. Time series databases (2000 – 2020) were utilized and analyzed using quantitative methods to estimate the import diversification index (ID) using the Herfindahl-Hirschman Index (HHI), which is further used as an endogenous variable to develop the import diversification empirical model, while the exogenous variables include gross domestic product per capita, food security, and total factor productivity. The Import Diversification Index confirms beef import market demonstrates a low diversified import or highly concentrated market, whereas mutton showed more diversified import markets. The results showed that national gross per capita income and food security status are the two variables that significantly influence the country's concentrated import markets for beef and mutton import diversification status. This study also found that per capita national income, self-sufficiency, and total factor productivity significantly affect the trade diversification degree for beef and mutton imports in Malaysia. Despite being massively dependent on meat (beef and mutton) imports, none of the specific studies has attempted to measure the trade diversification circumstance in Malaysia. The findings of this study are useful in strategizing the diversification of import markets, particularly for primary ruminant livestock commodities, in line with the national food security direction and policy agenda in Malaysia.

An Auction Algorithm for Market Equilibrium with Weak Gross Substitute Demands

We consider the Arrow–Debreu exchange market model under the assumption that the agents’ demands satisfy the weak gross substitutes (WGS) property. We present a simple auction algorithm that obtains an approximate market equilibrium for WGS demands assuming the availability of a price update oracle. We exhibit specific implementations of such an oracle for WGS demands with bounded price elasticities and for Gale demand systems.

Capesize time charter equivalent optimization based on speed and environmental regulations

PurposeThis paper aims to identify the interplay of standard Capesize optimal speeds for time charter equivalent (TCE) maximization in the Australia–China iron ore route and the optimal speeds as an operational tool for compliance with the International Maritime Organization (IMO) carbon intensity indicator (CII).Design/methodology/approachThe TCE at different speeds have been calculated for four standard Capesize specifications: (1) standard Capesize with ecoelectronic engine; (2) standard Capesize with non-eco engine (3) standard Capesize vessel with an eco-electronic engine fitted with scrubber and (4) standard Capesize with non-eco engine and no scrubber fitted.FindingsCalculations imply that in a highly inflationary bunker price context, the dollar per ton freight rates equilibrates at levels that may push optimal speeds below the speeds required for minimum CII compliance (C Rating) in the Australia–China trade. The highest deviation of optimal speeds from those required for minimum CII compliance is observed for non-eco standard Capesize vessels without scrubbers. Increased non-eco Capesize deployment would see optimal speeds structurally lower at levels that could offer CII ratings improvements.Originality/valueWhile most of the studies have covered the use of speed as a tool to improve efficiency and emissions in the maritime sector, few have been identified in the literature to have examined the interplay between the commercial and operational performance in the dry bulk sector stemming from the freight market equilibrium. The originality of this paper lies in examining the above relation and the resulting optimal speed selection in the Capesize sector against mandatory environmental targets.

The impact of long‐distance commuting on salaries and employment in host regions in Chile

AbstractLong‐distance commuting (LDC) is an increasingly relevant strategy of labor mobility worldwide and is therefore key to understanding the structure and dynamics of labor markets. However, little is known about the effect that LDC has on the labor market equilibrium of host territories. This paper addresses this gap for the case of Chile. While LDC is a useful strategy for improving salary and employment on a national scale, our results show a negative effect for residents in host territories (on a local scale), particularly when LDC results in commuters with similar characteristics to residents competing for the same jobs.

Retracted: Analysis of Consumer Recommendation Behavior and Market Equilibrium in E-Commerce from the Perspective of Social Media

Retracted: Analysis of Consumer Recommendation Behavior and Market Equilibrium in E-Commerce from the Perspective of Social Media

The Influence of Demand Fluctuation and Competition Intensity on Advantages of Supply Chain Dominance

We studied a supply chain consisting of multiple suppliers and multiple retailers. We use the Cournot–Stackelberg game, the Market–Stackelberg game, and the Market–Nash game to simulate the situation where the upstream seller’s market dominance power gradually decreases while the downstream buyer’s market power increases. The equilibrium decision and supply chain performance under the three models are compared and analyzed, as well as their responses to external market changes such as demand fluctuation and market competition intensity. The research shows that (1) in a seller-dominated supply chain, the increase in buyer power reduces market equilibrium production and wholesale price; (2) in the face of strong demand fluctuations, equivalent power between upstream and downstream can contribute to the stabilization of production and wholesale prices; (3) when market demand fluctuation is small, market power brings a higher profit level, and supply chain participants would like to actively compete for market power. However, when the demand fluctuates greatly, the profit advantage brought by market dominance is no longer significant, and there is no need to spend much to fight for market dominance; (4) the fierce competition of upstream suppliers will induce upstream to give up the competition for market dominance, and make the market power less attractive to downstream retailers. While the fierce horizontal competition downstream will stimulate both suppliers and retailers to actively compete for market power, (5) sufficient market competition will improve total supply chain profit, so encouraging competition is conducive to the overall economic development of society.

The perverse equilibrium effects of state and federal student aid in higher education

Reflecting the ongoing public concern about strategic behavior among colleges, we develop a game-theoretic higher education model with peer effects to examine the equilibrium market response to changes in state and federal student aid. In addition to establishing perfect equilibrium existence, we find that state and federal student aid programs are vulnerable to equilibrium effects that conflict with the intended impact of policy instruments. For instance, even when college objectives are devoid of selfish intent, strict increases in state and federal student aid can induce decreased student access to higher education or even increased financial strain from college enrollment.

Responsiveness of market equilibrium agricultural output, price and land use to shocks

AbstractWe assess the responsiveness of market equilibrium agricultural output, price and land use to shocks in agricultural demand, land yield and arable land area and the role of road infrastructure policy in offsetting them. We adapt a partial equilibrium model in the agricultural composite good and lands markets to guide the specification and estimation of a simultaneous equation model (SEM) for agricultural demand, land yield and acreage, and calculate market equilibrium responsiveness. We estimate the SEM by the generalised method of moments three‐stage least squares (GMM 3SLS) using a panel data set of the 10 biggest agricultural producer states in Brazil from 2001 to 2017. Using demand, land yield and acreage price elasticity estimates, we find that Brazil may expand equilibrium agricultural output while preserving its native vegetation land and dampening long‐term agricultural price escalation under a scenario of increasing worldwide demand for food, fibre and fuel and adverse climate shocks. Using acreage and land yield freight rate elasticity estimates, we show how shocks may be offset by road infrastructure policies that reduce freight rates to specific destination states, as they may be designed to induce less equilibrium land use for the same equilibrium output or raise equilibrium output with less equilibrium land use.

TESTING MARKET EFFICIENCY: THE ROAD TO INTRINSIC VALUATION

The paradigm of market equilibrium and the “efficient-market hypothesis” tied to it, dealing specifically with the behavior of capital markets, has no explanation for financial bubbles and their bursting that is leading to stock market crashes. Accordingly, the main goal of this paper is to discuss the inefficiency of markets, with examples of corporate decisions that directly abuse such inefficiency to psychologically motivate desired behavior of potential customers. To test the efficiency market hypothesis, we have used Stoxx Europe 600 index historical closing daily prices, for the period from 2012–2022. Using both non-parametric and parametric tests, such as the Kolmogorov–Smirnov test, run–test for random order, and ARIMA regression, we reject the hypothesis that the market is efficient in a weak form because it doesn’t follow a random walk. Also, basic-level problems of economic theory were analyzed, emphasizing the view that perhaps the time has come to align the fundamentals of economic theory with basic concepts that have been used in practice for years.

Container shipping: A market equilibrium perspective on freight rates formation post-Covid-19

The unprecedented container shipping freight rate levels post-Covid-19 are studied in a stochastic dynamic partial equilibrium framework. The proposed container marked model is calibrated on annual aggregate data from the two recent decades. The observed freight rate levels in 2021 and 2022 match a switch of competitive equilibria from Bertrand to Cournot competition. Whereas increased costs and reduced productivity play a role in explaining freight rates, these factors alone appear not to be able to justify the high post-Covid-19 freight rate levels.

Innovative Applications of Financial Mathematics in Economic and Financial Markets

Under the rapid development of the new economic situation, China's financial market is showing a thriving take-off scene, and the theoretical development and practical cases related to finance are also increasing geometrically. Financial mathematics, as an important theory that emerges at the historic moment, advocates the use of mathematical thinking to guide the discussion of financial theory. Taking advantage of the computational advantages of computers and mathematics, financial mathematics can conduct a deeper exploration of securities in financial markets and market equilibrium. Its formation and development provide strong data support for promoting the normal operation of financial institutions. Starting from the connotation of financial mathematics and its current development status, the author deeply analyzes the innovative application of financial mathematics at the financial market level, hoping to promote the orderly development of financial markets.

A matrix game‐based coordinated optimisation method of distribution networks with multiple flexible resources

AbstractThe ‘Electric energy substitution’ project in rural areas of northern China aims to replace coal‐fired heating with electric heating. However, this could potentially lead to congestion problems on the local distribution networks (DNs) due to an increase in heating loads. Instead of expanding the lines, flexible resources such as microgrids (MGs) and heat pumps (HPs) could provide auxiliary services in a more cost‐effective manner. A bi‐level optimisation model that coordinates DNs, MGs, and HP clusters is proposed to address this issue. In the lower level, MGs and HP clusters provide auxiliary services through competitive bidding to maximise their own income over multiple periods, considering a series of technical operational constraints and comfort constraints. In the upper level, DNs clear the market based on the bidding information to minimise its operational costs while guaranteeing network constraints. The bi‐level optimisation model is formulated as a multi‐agent matrix game problem, and the Win or Learn Fast‐Policy Hill‐climbing algorithm is used to achieve fast market equilibrium in a decentralised manner. Simulation results demonstrate that the proposed method can improve the revenue of MGs by up to 2.6 times compared to the single period matrix game method, and reduce the convergence time by up to 81.3% compared to the multi‐agent Q‐learning method.

A Dynamic Model for an Optimal Consumption Tax Rate

Following Ramsey, the existing literature on optimal taxation only compares the pre and the post-tax market equilibriums in order to account for the efficiency losses. However, when the government imposes an ad valorem tax on the consumer, the buyer's price jumps to the pre-tax equilibrium price plus the amount of the tax, and the supply and the demand of the taxed commodity then adjust over time to bring the new post-tax market equilibrium. The existing literature does not take into account the efficiency losses during the adjustment process while computing the optimal ad valorem taxes. This paper shows how adjustment process influences the optimal ad valorem taxes, minimizing the efficiency losses (output and/ or consumption lost) during the dynamic adjustment process as well as the post-tax market equilibrium. (JEL H20, H21, H22)

Generation side strategy and user side cost based on equilibrium analysis of the power market under the reliability option

The reliability option (RO) ensures generation capacity adequacy, drawing inspiration from financial product options. However, most recent RO studies overlook the gaming strategies employed by power producers. This paper proposes a bi-level model based on an equilibrium analysis of the power market under RO. The upper-level model aims to maximize the power producers’ profit, whereas the lower-level model focuses on market clearing. Profit calculation considers factors like electricity sales income, option fees income, fuel cost, expansion investment cost, refund cost, and penalties. The bi-level model is reformulated into a mathematical problem with equilibrium constraints (MPEC) for each producer using Karush–Kuhn–Tucker conditions of the lower-level model. We then apply a series of linearization methods. The market equilibrium is obtained through the dynamic game framework for all MPECs. We also provide a comprehensive purchase cost calculation and demonstrate its equivalence to user side surplus. We examine cases from various spot market construction maturities in a provincial area of China. Our results indicate that implementing the RO mechanism and aligning parameters with the proposed optimal RO parameter curve, one can reduce the comprehensive purchase cost.

Equilibrium multi-agent model with heterogeneous views on fundamental risks

This paper investigates an equilibrium-based multi-agent optimal consumption and portfolio problem incorporating uncertainties on fundamental risks, where multiple agents have heterogeneous (conservative, neutral, aggressive) views on the risks represented by Brownian motions. Each agent maximizes its expected utility on consumption under its subjective probability measure. Specifically, we formulate the individual optimization problem as a sup–sup–inf problem, which is an optimal consumption and portfolio problem with a choice of a probability measure. Moreover, we provide an expression of the state-price density process in a market equilibrium, which derives the representations of the interest rate and the market price of risk. To the best of our knowledge, this is the first attempt to investigate the multi-agent model with heterogeneous views on the risks by considering a market equilibrium and solving sup–sup–inf problems on the choice of a probability measure. We emphasize that the setting, where each agent has heterogeneous views on different risks, incorporates a special case where each agent has only conservative or neutral views on risks with different degrees of conservativeness. Also, the setting includes the case where the agents have aggressive views on risks, commonly observed as bullish sentiments in the financial markets in the monetary easing after the global financial crisis and particularly in the COVID-19 pandemic. Finally, we present numerical examples of the interest rate model, which show how heterogeneous views of the multiple agents on the risks affect the shape of the yield curve.