Quarterly Publication of Multinational Finance Society • ISSN 1096-1879

Volume 3    Number 1    March 1999

The Value of Invoice Currency Choice in a Volatile Exchange Rate Environment
(Multinational Finance Journal, 1999, vol. 3, no. 1, pp. 1–17)

Pekka Ahtiala
University of Tampere, Finland
Yair E. Orgler
Tel Aviv University, Israel

The paper explores the conditions whereby an exporter can gain a competitive advantage by offering a buyer a contract with a choice of invoice currencies rather than a single currency, and determines the value of such a choice. The model incorporates accounts-payable management with exchange- risk management, taking into account the forward exchange rate and the seller's assumptions about the buyer's initial foreign exchange position, its expectations about the future spot rate, and its risk premium. It demonstrates how the value of a choice depends on these variables, as well as on the market interest rates in the two currencies, and on the implicit conversion factor that the seller uses in pricing in different currencies. Two numerical examples demonstrate that a currency choice can be equivalent to a substantial price cut with commonly observed parameter values. Since an exporter can often offer a choice at a low cost to itself, it can increase profits by raising its product price in return for a choice without hurting its competitiveness. This is particularly relevant when offering the choice to the buyer in a less common currency or when exchange rates are volatile. The results are driven by the fact that the forward exchange rate often deviates substantially from the expected future spot rate, and by transactions costs, which can be considerable for less common currencies.

Keywords: invoice currency choice, payment terms in foreign trade

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International Transmission of Information: A Study of the Relationship Between the U.S. and Greek Stock Markets
(Multinational Finance Journal, 1999, vol. 3, no. 1, pp. 19–40)

Nikitas Niarchos
University of Athens, Greece
Yiuman Tse
State University of New York at Binghamton, U.S.A.
Chunchi Wu
Syracuse University, U.S.A.
Allan Young
Syracuse University, U.S.A.

This article investigates the international information transmission between the U.S. and Greek stock markets using daily data from the Athens Stock Exchange (ASE) and the S&P 500 Index returns. It employs a bivariate exponential GARCH-t (EGARCH-t) that allows for both mean and variance spillovers between the two markets. It also performs cointegration tests on the long-run relation between these two markets and explores the possible common volatility feature in the spirit of Engle and Kozicki (1993). The results show no spillovers between these two markets for the conditional mean and variance. Also, the cointegration test shows that these two markets are not driven by a common trend. It appears that the U.S. and Greek stock markets are not related to each other, either in the short-run or in the long-run. Contrary to previous studies of the world's large financial markets, the evidence here shows that the U.S. market does not have a strong influence on the Greek stock market (JEL G1 G15).

Keywords: cointegration, clustering, EGARCH, heteroskedasticity, spillover

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Do Trading Rules Based upon Winners and Losers Work Across Markets? Evidence from the Pacific Basin and U.S. Markets 
(Multinational Finance Journal, 1999, vol. 3, no. 1, pp. 41–70)

Hung-Gay Fung
University of Missouri, U.S.A.
Wai K. Leung
University of Hong Kong, Hong Kong
Gary A. Patterson
University of South Florida, U.S.A.

Numerous studies have examined trading strategies that seek to exploit price reversal behaviors in the U.S. stock market. The evidence to date suggests that taking a long position in U.S. stocks with negative returns (losers) and a short position in stocks that have positive returns (winners) may yield large profits. This article expands this line of research by applying these trading rules to Pacific Basin markets. Striking differences in the pattern of portfolio returns between most Pacific Basin markets and those in the U.S. market are found. This article demonstrates that profitable trading strategies developed in the U.S. may not be successfully transferred to other national markets (JEL C1, F3, and G1)..

Keywords: Pacific Basin and U.S. stock markets, trading rules, transaction costs

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