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Copyright by Global Journal of Management and Business Research 2009. All rights reserved. This is

Copyright by Global Journal of Management and Business Research 2009. All rights reserved.

This is a special issue published in version 1.0 of ―Global Journal of Management and Business Research.‖ All articles are open access articles distributed under the Global Journal of Management and Business Research Reading License, which permits restricted use. Entire contents are copyright by of ―Global Journal of Management and Business Research‖ unless otherwise noted on specific articles. No part of this publication may be reprodu ced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without written permission. The opinions and statements made in this book are those of the authors concerned. Ultraculture has not verified and neither confirms nor denies any of the foregoing and no warranty or fitness is implied. Engage with the contents herein at your own risk.

John A. Hamilton,"Drew" Jr., Ph.D., Professor, Management Computer Science and Software Engineering Director,

John A. Hamilton,"Drew" Jr., Ph.D., Professor, Management Computer Science and Software Engineering Director, Information Assurance Laboratory Auburn University

Dr. Henry Hexmoor IEEE senior member since 2004 Ph.D. Computer Science, University at Buffalo Department of Computer Science Southern Illinois University at Carbondale Dr. Osman Balci, Professor Department of Computer Science Virginia Tech, Virginia University Ph.D.and M.S.Syracuse University, Syracuse, New York M.S. and B.S. Bogazici University, Istanbul, Turkey Yogita Bajpai M.Sc. (Computer Science), FICCT U.S.A. Email: yogita@computerresearch.org

Dr. T. David A. Forbes Associate Professor and Range Nutritionist Ph.D. Edinburgh University - Animal Nutrition M.S. Aberdeen University - Animal Nutrition B.A. University of Dublin- Zoology.

Dr. Bart Lambrecht Director of Research in Accounting and Finance Professor of Finance Lancaster University Management School BA (Antwerp); MPhil, MA, PhD (Cambridge)

Dr. Wenying Feng Professor, Department of Computing & Information Systems Department of Mathematics Trent University, Peterborough, ON Canada K9J 7B8 Dr. Thomas Wischgoll Computer Science and Engineering, Wright State University, Dayton, Ohio B.S., M.S., Ph.D. (University of Kaiserslautern) Dr. Abdurrahman Arslanyilmaz Computer Science & Information Systems Department Youngstown State University Ph.D., Texas A&M University University of Missouri, Columbia Gazi University, Turkey Dr. Xiaohong He Professor of International Business University of Quinnipiac BS, Jilin Institute of Technology; MA, MS, PhD,. (University of Texas-Dallas) Burcin Becerik-Gerber University of Southern Californi Ph.D. in Civil Engineering DDes from Harvard University M.S. from University of California, Berkeley & Istanbul University Dr. Söhnke M. Bartram Department of Accounting and Finance Lancaster University Management School Ph.D. (WHU Koblenz) MBA/BBA (University of Saarbrücken)

Dr. Carlos García Pont Associate Professor of Marketing IESE Business School, University of Navarra Doctor of Philosophy (Management), Massachussetts Institute of Technology (MIT) Master in Business Administration, IESE, University of Navarra Degree in Industrial Engineering, Universitat Politècnica de Catalunya

Dr. Fotini Labropulu Mathematics - Luther College University of Regina Ph.D., M.Sc. in Mathematics B.A. (Honors) in Mathematics University of Windsor

Dr. Lynn Lim Reader in Business and Marketing Roehampton University, London BCom, PGDip, MBA (Distinction), PhD, FHEA

Dr. Mihaly Mezei ASSOCIATE PROFESSOR Department of Structural and Chemical Biology Mount Sinai School of Medical Center Ph.D., Etvs Lornd University Postdoctoral Training, New York University

Dr. Miguel Angel Ariño Professor of Decision Sciences IESE Business School Barcelona, Spain (Universidad de Navarra) CEIBS (China Europe International Business School). Beijing, Shanghai and Shenzhen Ph.D. in Mathematics University of Barcelona BA in Mathematics (Licenciatura) University of Barcelona Philip G. Moscoso Technology and Operations Management IESE Business School, University of Navarra Ph.D in Industrial Engineering and Management, ETH Zurich M.Sc. in Chemical Engineering, ETH Zurich Dr. Sanjay Dixit, M.D. Director, EP Laboratories, Philadelphia VA Medical Center Cardiovascular Medicine - Cardiac Arrhythmia Univ of Penn School of Medicine Dr. Han-Xiang Deng MD., Ph.D Associate Professor and Research Department Division of Neuromuscular Medicine Davee Department of Neurology and Clinical Neurosciences Northwestern University Feinberg School of Medicine

Dr. R.K. Dixit (HON.) M.Sc., Ph.D., FICCT Chief Author, India Email: authorind@computerresearch.org Vivek Dubey (HON.)

Dr. R.K. Dixit (HON.) M.Sc., Ph.D., FICCT Chief Author, India Email: authorind@computerresearch.org

Chief Author, India Email: authorind@computerresearch.org Vivek Dubey (HON.) MS (Industrial Engineering), MS

Vivek Dubey(HON.) MS (Industrial Engineering), MS (Mechanical Engineering) University of Wisconsin FICCT Editor-in-Chief, USA editorusa@computerresearch.org Sangita Dixit M.Sc., FICCT Dean and Publisher, India deanind@computerresearch.org

Er. Suyog Dixit BE (HONS. in Computer Science), FICCT SAP Certified Consultant Technical Dean, India Website: www.suyogdixit.com Email:suyog@suyogdixit.com, dean@computerresearch.org

i. Copyright Notice ii. Editorial Board Members iii. Chief Author and Dean iv. Table of

i. Copyright Notice

ii. Editorial Board Members

iii. Chief Author and Dean

iv. Table of Contents

v. From the Chief Editor’s Desk

vi. Research and Review Papers

1. Venture Capital Financing In India: Path of Differential Diffusion Trajectory A Comparison with the USA 2-10

2.

Modelling Armed Robbery Crime Insurance Claims in Nigeria 11-20

3.

Promoting an Emerging Tourism Destination 21-28

4.

Are the Global Stock Markets Inter-linked? Evidence from the Literature 29-40

5.

Critical Service Encounters: The Employee’s Viewpoint (A Study on Restaurant

Services in Dhaka City) 41-47

6. Reliability and Availability Based Hybrid Flow Shop Scheduling Using Fuzzy

Logic 48-55

7. Financial Liberalisation Policy for Fostering Credit to the Private Sector in

Nigeria for Economic Growth 56-65

8. Oil Politics and the Crisis of Development in the Niger Delta 66-73

9. Eccentric Turnover Behavior among the Working Students of Pakistan 74-80

10. Impact of Brand Placement in Films- A Viewer’s Perception 81-87

11. Regulating Bank Systemic Risk: New Principles in Macroprudential

Management 88-96 12.Clinical Trials: A Branding Opportunity? 97-103

13.

Strategies to Increase E-Government Take-Up: Looking Beneath Statistics 104-

114

14. The Innovation Process under the View 115-122

15. Knowledge Management: Promises and Premises 123-131

16. The Role of Life Skills Training on Self-Efficacy, Self Esteem, Life Interest, and

Role Behavior for Unemployed Youth 132-139

17. Assessing of the SME’s Financial Competitiveness 140-147

18. A Study of the Integrity of Internet Financial Reporting: Empirical Evidence of

Emerging Economy 148-158

19. Brand Decisions and Brand Influence: A Comparison of Rural and Urban

20.

Management of the Modernization Projects from the Technical-Economic

Systems 172-175

21. Sensitivity and Uncertainty Analysis: Applications to Small-land Scale

Agriculture Systems in Nigeria 176-183

vii.

Auxiliary Memberships

viii.

Process of Submission of Research Paper

ix.

Preferred Author Guidelines

x.

Index

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Global Journal of Management and Business Research T he research activities among different disciplines of

T he research activities among different disciplines of natural science are backbone of system. The deep and strong affords are the demands of today. Sincere afford must be exposed worldwide. Which, in turns, require international platform for

rapid and proper communication among similar and interdisciplinary research groups.

The Global Journal of Management and Business Research is to fulfill all such demands and requirements, and functions also as an international platform. Of course, the publication of research work must be reviewed to establish its authenticity. This helps to promote research activity also. We know, great scientific research have been worked out by philosopher seeking to verify quite erroneous theories about the nature of things.

The research activities are increasing exponentially. These great increments require rapid communication, also to link up with others. The balanced communication among same and interdisciplinary research groups is major hurdle to aware with status of any research field.

The Global Journals is proving as milestone of research publication. In view of whole spectrum of Knowledge, the research work of different streams may be considered as branches of big tree. Every branch is of great importance. Thus, we look after the complete spectrum as whole. Global Journals let play all the instruments simultaneously. We hope, affords of global Journals will sincerely help to build the world in new shape.

Dr. R. K. Dixit Chief Author cheifauthor@globaljournals.org

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Venture Capital Financing In India: Path of Differential Diffusion Trajectory A Comparison with the USA

Dr. Chimun Kumar Nath Lecturer, Department of Commerce,Dibrugarh University.nathchimun@yahoo.com Dr. A. SahaReader,Department of Commerce,Dibrugarh University.saha.a@mailcity.coma_sahadib@yahoo.co.in

Abstract-Purpose- To compare between the recent US ventures capital financing (VCF) to that of Indian VCF. The paper also attempts to extract perceptional differences between the FI’s towards VCF operating in the country. Design/methodology/approach- A comparison of VCF between US operations and Indian operations in this context has been pursued. 2 Indian states i.e. Karnataka and Assam have been studied on various aspects of VCF, followed by comparing the findings there from with that of US findings between the periods ranging from 1990 to 2006. Findings- It is observed that convergence of VCF maturity in US and acceleration of growth of Indian VCF has been attained during 1990s. Despite a discernible growth of VCF in India since 2000 onwards, venture capital investments in enterprises both in the early and the expansion stages has been significantly less diffusive than that of the US. Research Limitations/ Implications- the study has considered 6 VCFs and 12 VCFs from Assam and Karnataka respectively out of 56 VCF entities in India recognized by SEBI. Originality/Value- the paper signifies the operational differences in US and India in the context of VCF. The input from US study however, can be used to improve the modalities of operation in India. Paper Type- Review of literatures and field survey.

Keywords- venture capital, Venture Capital Financing (VCF), equity investment, India, United States, Karnataka, Assam

I

PROLOGUE

T here are many definitions of venture capital. However, the present researchers accept the simple definition that

states Venture capital as the risky capital collected through different sources to invest alongside management in rapidly growing industries. Venture capital is often referred to as a prerequisite for productivity and employment growth. In line with the American tradition, as an experienced intermediary, the venture capitalist, understands venture capital as offering financial means to young high-technology enterprises in combination with management support for these enterprises. Investments by a venture capital fund can take the form of either equity participation, or a combination of equity participation and debt obligation - often with convertible debt instruments that become equity if a certain level of risk is exceeded. In most cases, the venture capitalist becomes part owner of the new venture. Some investments are structured as debt to equity participation - often reserved by covenant for a future buyout. Venture capital investment criteria usually include a planned exit

event (an IPO or acquisition), normally within three to seven years. The role of venture capital in facilitating employment and productivity growth has made venture capital a major target of financial market policies by the government of India. They attempted to ease the access to equity capital for young high-technology enterprises by improving the regulatory conditions the venture capitalists face in the Indian markets and by granting different subsidies. The US venture capital financing size can serve as a benchmark for the discussion of the development in the Indian size of VCF. In the US, venture capital is predominantly invested in relatively young, high technology enterprises. During the 1990s, pension funds were the main capital provider to venture capital funds. These funds were managed by independent venture capitalists that are often specialized on particular stages of enterprises‘ development and/or particular technologies. The size of Indian venture capital financing, are relatively smaller as compared to the US size. This follows from the comparisons of investments in young enterprises and from investments in particular high technology areas in India. Until 1990, banks were the main sources of financing here. Only at the beginning of the new millennium, the importance of pension funds increased in most parts of the world. In India, venture capitalists are often dependent on their capital providers. Especially banks prefer to invest in their own subsidiaries and not in an independent venture capital fund. Moreover, this paper also investigate whether FIs as a venture equity investors acting in a particular national market differ significantly with respect to investment strategies using a collection of primary data of FIs of Assam and Karnataka. This is important because many state governments of India like Gujarat, Maharastra etc. have introduced specific policies to stimulate venture capital activity, which cannot be identified in aggregated data on VCF activity in India. The paper proceeds with a description of the Key facts of the US venture capital market. In the next section, the development, of Indian VC market along with two Indian regional VC environments have been examined with respect to the funds raised, investments, and impact of Human and Social Capital in formation of VC and finally compared with the US venture capital market. All these discussions are ranging from 1990 to 2006. Last section summarizes the findings.

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II THE US MARKET OF VENTURE CAPITAL FINANCE

The venture capital market in the US is the oldest and most developed of the world and is therefore chosen as the benchmark for the analysis of the Indian market. In the American tradition, which is used here, venture capital finance denotes the simultaneous offering of financial means and management support for a certain area of young high- technology firms i . Venture capital funded companies are an integral part of the American economy. The dollars and cents contribution of the venture capital industry goes well beyond the objective economic contribution. It continually reinforces America‘s entrepreneurial spirit. In addition, in so doing, the venture capital industry becomes a catalyst for change. Venture capitalists, many of whom are successful former entrepreneurs themselves, shepherd new businesspersons and women to reach their full potential. The late 1980s marked the transition of the primary source of venture capital funds from wealthy individuals and families to endowment, pension, and other institutional funds. The surge in capital in the 1980s had predictable results. Returns on venture capital investments plunged. Many investors went into the funds anticipating returns of 30 percent or higher. That was probably an unrealistic expectation to begin with. The consensus today is that private equity investments generally should give the investor an internal rate of return something to the order of 15 percent to 25 percent, depending upon the degree of risk a firm takes. However, by 1990, the average long-term return on venture capital funds fell below 8 percent, leading to yet another downturn in venture funding. Disappointed families and institutions withdrew from venture investing in phases during the 1989-91 periods. The economic recovery and the IPO boom of 1991-94 had gone a long way towards

reversing the trend in both private equity investment performance and partnership commitments. In 1998, the venture capital industry in the United States continued its seventh straight year of growth. It raised USD25bn in committed capital for investments by venture firms, who invested over USD16bn into domestic growth companies in all sectors, but primarily focused on information technology. This potential can be seen in the growth of sales figures for the US. From 1992 to 1998, venture-backed companies saw their sales grow, on average, by 66.5 per cent per annum as against five per cent for Fortune 500 firms. The export growth by venture-funded companies was 165 per cent. The top ten US sectors, measured by asset and sales growth, were technology-related. Thus, venture capital is valuable not just, because it makes risk capital available in the early stages of a project, but also because a venture capitalist brings expertise that leads to superior product development. The big focus of venture capital worldwide is, of course, technology. So in 1999, of USD30bn of venture capital invested in the US, technology firms received approximately 80 per cent. In addition to this huge supply of venture funds from formally organized venture capital firms, is an even larger pool of angel or seed/start-up funds provided by private investors. In 1999, according to estimates, approximately USD90bn of angel investment was available, thus making the total ‗at-risk' investment in high technology ventures in a single year worth around USD120bn. Pension funds have been the main capital providers to venture capital funds (limited partnerships), while corporations, and financial and insurance have played a minor role (Exhibit 1). Pension funds contributed between 35 and 60 per cent of the new funds raised between 1990 and 1998. In 1999, however, only 23 per cent of the capital was contributed by pension funds.

Exhibit 1: Sources of New Funds and its Allocation in the US*

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

1991 1992 1993 1994 1995 1996 1997 1998 1999 * Compiled from the original table source:

*Compiled from the original table source: European new funds raised and exchange rates are from EVCA 19912000,US new funds raised are from NVCA (2000), consumer

price indices are from International Financial Statistics CD ROM IFS (2000). The 1980 ‗Safe Harbor‘ Regulation further improved the conditions for venture capital committed by pension funds

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because it defined pension funds as limited partners, which reduced the risk exposure of venture capitalists. These acts had clearly a considerable impact for the upswing in venture capital activity at the beginning of the 1980s. Especially pension funds and their de-regulation seem to have played a significant role in the development of the US venture capital market. This extraordinary boom during the 1990s is not the first significant change that the American market for venture capital has experienced since its humble beginnings in the 1930s. Two upswings of venture capital activity can be identified in the time series. The first upswing took place in the mid- 1960s, the second at the beginning of the 1980s. Both upswings, however, in the US, new funds raised for private equity grew at a lower rate than new funds raised for venture capital are small compared to the increase in venture capital activity at the end of the 1990s. The first two upswings seemed to be influenced by public policies 2 . The journal ‗Venture Economics‘ had identified two reasons for the extraordinary boom in the investments in enterprises‘

early and expansion stages at the end of the 1990s (BVK 2001) 3 . Venture capital funds brought their passive investors high returns, resulting in a considerable re-investment of money; especially institutional investors reinvested large amounts of their funds. Secondly, the development of stock markets resulted in a restructuring of institutional investors‘ portfolios so as to invest more money in venture capital funds. 4 Thus, the US government also supports the creation of venture capital companies. California, Texas, Massachusetts, Washington, and Pennsylvania topped the list of states by sales of venture capital backed firms headquartered in the State by 2003. Venture capital backed companies headquartered in California were responsible for USD438 billion in sales in

2003. In Texas, venture backed sales reached nearly

USD190 billion in 2003 and exceeded USD100 billion in Massachusetts. Other leading states measured by venture capital backed firms sales were Washington, at slightly more than USD100 billion, and Pennsylvania, at USD 94 billion in 2003. (Exhibit 2) Venture capital funded companies were directly responsible for more than 10 million jobs and $1.8 trillion in sales in

2003. This corresponds to 9.4 percent of total U.S. private

sector employment and 9.6 percent of company sales. This is impressive given that venture investment was less than two percent of total equity investment for most of the past 34 years. Venture Capital Backed Firms Outperform Other Companies Venture backed firms added some 600,000 net jobs to the U.S. economy between 2000 and 2003.

Venture supported firms such as ebay, Google, and JetBlue are just three examples of the many successful ventured businesses that have hired hundreds of new employees over these three years.

Exhibit 2: State Wise Classification of Turnovers by VC Backed Firms in US

Wise Classification of Turnovers by VC Backed Firms in US Source: Global Impact 2004, v.18, no.3

Source: Global Impact 2004, v.18, no.3 In the first quarter of 2007, venture capitalists invested USD7.1 billion into 778 deals, the highest quarterly dollar amount since the fourth quarter of 2001, according to the MoneyTree Report by Price Waterhouse Coopers and the National Venture Capital Association based on Thomson Financial data. Deal volume actually declined in the quarter compared with the fourth quarter of 2006, indicating venture capitalists‘ willingness to put more dollars into each round. The Life Sciences sector (Biotechnology and Medical Devices together) had an extremely strong quarter, with Biotechnology ranked as the number one industry for investment, while Medical Devices was at an all-time high. Later Stage investing also jumped in the quarter to the highest dollar level since the fourth quarter of 2000. First time financings remained relatively steady, increasing slightly over last year. Medical Device investing skyrocketed to an all-time high in the first quarter, with USD1.08 billion going into 96 deals, a 60 percent increase in dollars over last quarter 2006. Biotechnology was the single largest industry sector with USD1.5 billion going into 102 deals, unseating software, which was traditionally the largest sector. Life Sciences accounted for 36 percent of the quarter‘s dollars, an all-time high.

III THE INDIAN MARKET OF VENTURE CAPITAL FINANCE

In the early 1980s, the idea that venture capital might be established in India would seem to be fuzzy. India has highly insulated economy, avowed pursuit of socialism, quite conservative social and business perception, and a risk-averse financial system provided little institutional space for the development of venture capital. With the high level of government involvement, it is not surprising that the

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first formal venture capital organizations began in the public sector. The 1980s were marked by an increasing disillusionment with the trajectory of the economic system and a belief that liberalization was needed. Prior to 1988, the Indian government had no policy toward venture capital. In 1988, the Indian government issued its first guidelines to legalize venture capital operations, Ministry of Finance (1988 5 ). These regulations were aimed at allowing state-controlled banks to establish venture capital subsidiaries, though it was also possible for other investors to create a venture capital firm. There was only minimal interest, however, in the private sector in establishing a venture capital firm, Ramesh et al. (1995 6 ) In the late 1990s, the Indian government became aware of the potential benefits of a healthy venture capital sector. Thus in 1999 a number of new regulations were introduced. Some of the most significant of these related to liberalizing the regulations regarding the ability of various financial institutions to invest in venture capital. Perhaps the most important of these went into effect in April 1999 and allowed banks to invest up to 5% of their new funds annually in venture capital. Until 2001, however, they had not made any venture capital investments. This is not surprising since bank managers are rewarded for risk-averse behavior. Lending to a risky, fast-growing firm could be unwise because the loan principal is at risk while the reward is only interest. 7 In such an environment, even if bankers were good at evaluating fledgling firms, itself a dubious proposition, extending loans would be unwise. This meant that since banks control the bulk of discretionary financial savings in the country, there is little internally generated capital available for venture investing. From 2000 onwards, the venture capital industry has made an enormous contribution to the high-technology industry. In turn, high technology has furthered national productivity. The three percent annual growth rate in productivity since 1996 in the US, stems from investments in a range of technology industries such as computers, software, and communications equipment. It has helped user industries like retailing, airlines, and manufacturing to be more productive. By 2000 some new countries has emerged in the field of VCF. India is a country where the VCF penetration was although taken place lately, but by 2002, it has attained the coveted list of top twenty countries based on investment criteria (Exhibit 3)

Exhibit 3: The World View: Top 20 Countries in 2002 & 2001 - Based on Investment

Top 20 Countries in 2002 & 2001 - Based on Investment Source: AVCA report, 2003 The

Source: AVCA report, 2003

The Indian government has reiterated its commitment to the Indian software-driven IT industry by creating a National Venture Capital Fund for the Software and IT Industry (NFSIT). NFSIT, set up in association with various financial institutions and the industry, operates under the umbrella of the Small Industries Development Bank of India (SIDBI). The objective of the fund is to encourage entrepreneurship in the areas of software, services, dot.com and other IT related sectors in which India has inherent as well as acquired competency. The fund is expected to be a key component in addressing the rapidly growing demand for venture capital in India. The fund will be looking at supporting entrepreneurship in high growth sectors. Many state governments have already set up venture capital funds for the IT sector in partnership with local state financial institutions and SIDBI. These include Andhra Pradesh, Karnataka, Delhi, Kerala, and Tamil Nadu. With so much of changes happening around venture capital financing in India yet, the fruitful result of exploring the advantages of such financing has not been equally distributed among the states in India. It is a fact that certain states like Maharashtra, Gujarat, Karnataka and Andhra Pradesh are far more advanced in mobilizing the venture capital funds rather than the rest of the country. Especially state like Karnataka is on the launching pad; thanks to the information technology advancement. The picture of venture capital financing is gloomier in entire North Eastern Region in general and Assam in Particular. Although it has been recognized several times that any business running in the North Eastern Region is comparatively risky proposition due to its geographical location, environment, the infrastructural bottlenecks, etc. but there are hardly any venture capital environment being developed around this place. There is an urgent need being felt to uncover why the entrepreneurs in this part of India possess an averse attitude towards venture capital financing - whether they do not have innovative ideas (in the form of new technology) or other factors governing the growth and development of human and social capital or the investing environment of the region is a deterrence.

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IV THE VCF ENVIRONMENT OF ASSAM AND KARNATAKA

By considering the above factors, a research observation would be to look into the problem of Venture Capital growth in Assam. At the same time, it is noteworthy to grasp some more information about the growth of Venture Capital in some of the advance states of India where VCF has taken place in large numbers. In India, Maharastra is the leading state in terms of Venture Capital movement followed by Gujarat, Tamil Nadu and Karnataka 8 Karnataka happens to be the state where it has been observed that, before the information technology (IT) revolution since 1995 onwards; there was negligible diffusion of venture capital funding 9 . Predominantly having an agro- based economy, Karnataka has shifted their focus from Agriculture to IT and IT enabled services during the first generation of reforms and has started enjoying the benefits during the second-generation reforms starting from 1995 onwards. So far, it has also been observed that the other top positioned states in terms of VCF penetration differ in characteristics as compared to Assam. Thus, the study has attempted to gather the experiences of Karnataka in the direction of VCF development to suggest a comprehensive methodology of VCF development in Assam as because Assam is still an agrarian economy like pre 1995 Karnataka. Even after having rich natural and other resources, Assam has witnessed very poor development of venture capital growth. It has been observed that the impact of Social and Human Capital on venture capital needs to be considered as a source of funding for young high-technology enterprises and in the Karnataka market the presence of social and human capital paves the way for formation of financial capital, which ultimately develops the venture capital market positively. The differences between equity investors acting in a single state market are of special interest, since their likely heterogeneity is important when interpreting aggregated data on investments or on new funds raised, because this heterogeneity may imply significant differences in the quality of capital offered. The study was carried out by approaching 12 financial institutions offering venture capital in Karnataka and six financial institutions that are sponsors of venture capital but having the business of conventional financing in Assam. These financial institutions engaged in the business of conventional financing in Assam have been financing venture capital through their subsidiaries or through a separate fund created exclusively for the purpose in Karnataka and some other states in India. Data have been collected by way of canvassing a questionnaire amongst the respondents and analyses have been pursued based on the feedback therein. It was observed from the study that the formation of financial capital in the state of Assam suffers due to some poor record of accomplishment of repayments in conventional type of loans. This creates a sense of lack of confidence among the Financial Institutions in the state towards the budding entrepreneurs. At the same time in order to protect their risk involvement in financing a project to get the repayment on time, the Financial Institutions prefer to finance only those projects, which are backed by

some existing successful enterprises. This could be of any form like experienced entrepreneurs, entrepreneurial generations, conventional type of business where a steady earning can be obtained, or stake of successful business houses in the proposed enterprise. Such an attitude though provides a good support for the Financial Institutions to safeguard their business risk but it also left behind many negative impacts. One of them could be in terms of formation of Venture Capital Financing. Because Venture Capital Financing is generally provided to a sunrise industry having no experience of any actual performance unless it is started and/or to those entrepreneurs who have for the first time ventured into the project. Such conceptual conflict also has some negative impact on the budding entrepreneurs as they were deprived of getting their venture financed. It was observed from the study that the formation of Human Capital in the state of Assam in comparison to Karnataka is somewhat unorganized. However, Assam has enough potentiality to form such Human Capital but due to the information asymmetry, the proper development of such capital is not there in the state at present. At the same time, the brain drainage could be another problem patronizing the low formation of Human Capital in the state. However, a detailed analysis as to why such problems exist in the state reveals low formation of Social Capital. Interestingly, in case of Karnataka it was found that the Financial Institutions are least bothered to analyze the human capital while receiving a proposal as such because the Social Capital in the state is of high quality. It was also observed that, as a compensating strategy that entrepreneurs can adopt, is to have a wide range of contacts in their social networks. Research also showed that when networks contain people from a verity of work backgrounds, especially those beyond the immediate work group, they tended to be more powerful (Blau et al 1982) 10 In Karnataka market, it is seen that most of the IT based VC receivers are previously having working experience mostly in the Silicon Valley as highly paid executives. There is a positive relationship between prior work experience and venture survival and success, it was proved once again in the state especially in IT, and IT enabled Venture Capital Financing. Thus, network diversity enhances the chances of accessing a wide array of resources. However, the likelihood that the contacts will deliver value or resources depends on the strength of the tie, or the nature of the relationships between the network members. Individuals draw instrumental resources like materials and physical resources, as well as expressive resources such as friendship, mutual trust, from their network contacts. In case of Karnataka, it seems that the financial institutions were keen in financing VC as the presence of social and human capital are there among the entrepreneurs. Apart from education and training, human capital derives from work environment (Carter et al.1997) 11 and social capital derives from social environment. In Karnataka, such environment is created not only from the efforts of people of the state but also by the government. However, in Assam due to the information asymmetry, brain drainage, as well as absence of social network, the entrepreneurial development in the state is not proper. The

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governmental effort receives lesser success due to creation of a negative atmosphere in developing entrepreneurial skills among the youths. A financially disciplined approach is necessary for Venture Capital Financing, which is missing in the state. An interesting finding by studying both the states is that bootstrapping and loan financing provide a foundation for gaining experience and legitimacy that position ventures to secure equity financing. From the study it was observed that in Karnataka, almost all the Financial institutions were doing equity financing and for that they consider only the presence of Human and Social capital. However, in Assam, the loan financing itself gives such a gloomy picture to the financial institutions as it was found that the majority of the repayment scenario for the conventional loans in the state is very poor. Under the circumstances, an equity financing could turn out to be a daydream. It can also be inferred that since the human as well as social capital formulation in the state is very low, the financial institutions are not interested to go for Venture Capital Financing. The study reveals that there are many factors, which have an adverse impact on the venture capital financing in Assam. At the same time if it is looked from the business potentiality and that too for growing up a considerable venture capital market, the state of Assam can provide certain opportunities also. It has a Strategic location - access to the vast domestic and South Asian market. Assam has a large and rapidly growing consumer market; constitute the market for branded consumer goods - estimated to be growing at 8% per annum. Demand for several consumer products is growing at over 12% per annum. Assam is one of the largest agro based sectors in the world in terms of Tea production. An R&D investment in this sector may bring many innovations that may lead to create many sunrise industries. Assam has one of the pools of scientists, engineers, technicians, and managers in certain specific areas in the country having IIT, RRL, Agriculture University, B-Schools etc. Assam has a potential R&D infrastructure and technical and marketing services for biotech sector. The state/ Central government has created policy environment that provides freedom of entry, investment, location, choice of technology, production, import and export. There is a well-balanced package of financial institutional incentives, Free, and full repatriation of capital, technical fee, royalty, and dividends. There is no income tax on profits derived from export of goods. Complete exemption from Customs Duty on industrial inputs and Corporate Tax Holiday for five years for 100 per cent Export Oriented units & units in Export Processing Zones may makes the environment a Venture capital friendly one provided the entrepreneurs of the region should come up to capitalize it. The information asymmetry presently exist in Assam should be reduced and the demonstration effect of Venture Capital Financing must be properly communicated to the entrepreneurs. The security of investment must be protected by way of mutual dependence between the demand and supply side. Role of NGOs cannot be ignored in creation of social capital. At the same time, the mutual trust between the entrepreneurs and the financial

institutions must be created so that the Venture Capital Financing gets momentum. An intervention from state government machineries is necessary for creation of social capital. In Assam, the concept of supporting entrepreneurs and innovators with Venture Capital funds has not yet developed. Even though development funds have been available from various Financial Institutions and Development Banks, they are largely to support proven technologies whether indigenously developed or imported. Support by funding "Home grown technologies" are available though Government and other sources they still follow the pre-condition of having validated the technology but at least at the laboratory scale, if not in the Pilot Plant. Even today, most of the Venture Capital Companies whether attached to large financial institutions such as IDBI or ICICI or to State and Central Governments are varying in supporting very early stage projects, which are at an R&D stage, primarily due to the fear of failure. In Assam, there is an urgent need to develop a Financial Institution, which will work exclusively to promote Venture Capital Financing in the state. The AIDC in collaboration with other Financial Institutions can create such fund to facilitate the venture capital growth in the state. A combination of Equity and Debt financing support could be the ideal form of Venture Capital Financing in the state. The VCF prospects in the state include equity support to Pharmaceutical industry, IT enabled industry, indigenous engineering process in Oil, Tea, Natural Gas production, Carbon based industries, exclusive SME financing etc. It is only when the human, social and financial capital will meet together to have a conducive atmosphere for Venture Capital Financing growth in the state.

V COMPARISON OF US AND INDIAN VCF MARKET

India is a significant case study in VCF penetration for a number of reasons. First, in contrast to the United States, India had a history of state-directed institutional development that is similar, in certain ways, to such development in Japan and Korea, with the exception that ideologically the Indian government was hostile to capitalism prior to 1991. In the United States, venture capital is only a small component of the much larger national innovation system (NIS), and as such is dependent on many other institutions. In the United States and in India the development of venture capital has been a co evolutionary process. This is particularly true in India, where it remains a small industry precariously dependent upon other institutions, particularly the government, and external factors such as international lending agencies, overseas investors, and successful Indian entrepreneurs in Silicon Valley. The growth of Indian venture capital must be examined within the context of the larger political and economic system in Indiaii. As was true in other countries, the Indian venture capital industry is the result of an iterative learning process, and it is still in its infancy. If it is

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to be successful, it will be necessary not only for it to grow, but also for its institutional context to evolve. In sharp contrast to the United States, however, where a venture capital fund can invest in any industry it wishes, in India only six industries have been approved for investment:

software, information technology, pharmaceuticals, biotechnology, agriculture, and allied industries during 1990 until 2001. Statutory guidelines also limited investments in individual firms based on the firm‘s and the fund‘s capital. The result of these various regulations has been a channeling of venture capital investment toward late-stage financing. After a lot of debate finally, the SEBI regulations did not have any sectoral investment restrictions except to prohibit investment in financial services firms and of late investment in real estate. Impediments to the development of venture capital also exist in India‘s corporate, tax, and currency laws. India‘s corporate law did not provide for limited partnerships, limited liability partnerships, or limited liability corporations (LP, LLP, and LLC, respectively) as available in USA. Moreover, Indian regulations did not recognize limited life funds, so in India, it was relatively easy to terminate a trust, but this meant that the entire firm was closed rather than a specific fund within the firm. Therefore, each fund had to be created as a separate trust or company. This process was administratively and legally time-consuming. Terminating a fund was even more cumbersome, as it requires court approval on a case by- case basis. The restrictions on venture capital extend beyond the framework of corporate law. The largest single source of funds for US venture capital funds since the 1980s has been public and private sector pension funds. In India, there are large pension funds but they are prohibited from investing in either equity or venture capital vehicles, thus closing off this source of capital. In summation, prior to the late 1980s, though India did have a vibrant stock market, the rigid and numerous regulations made it nearly impossible for the existing financial institutions to invest in venture capital firms or in startups. Investors amenable to purchasing the equity in early stage companies. It was also possible to bootstrap a firm and/or secure funds from friends and familyif one was well connected. However, no financial intermediaries comfortable with backing small technology-based firms existed prior to the mid-1980s. It is safe to say that little capital was available for any entrepreneurial initiatives. An entrepreneur aiming to create a firm would have to draw upon familial capital or bootstrap their firm. An interesting observation between the two countries is that there is a surge in risk capital by 2004 onwards. The spread of growth of such capital is outside the information technology sector. The two of the three biggest deals of 2003 in India had nothing to do with technology. One was CDC‘s $57 million investment in Punjab Tractors and the other was Warburg‘s $50 million deal with Radhakrishna Foodland. Henceforth the important point to really concentrate here as to why the sudden diversification of opportunities occurred in India. At the same time, the US market also witnessed shifting of priorities from IT to

biotech by 2003 onwards. One may blame it on India‘s happy growth story as the economy is clipping at 7 percent plus and could possibly gather more steam. On the other hand, outsourcing has become a major movement across sectors- from IT to BPO to automotive to textiles to Pharmaceuticals and on the other, smaller but strategic companies, especially in FMCG, are racking up stunning growth thanks to their low cost, high quality strategy. Such developments in IT sector in Indian market have a downswing of VCF growth in certain states, which are traditionally IT, backed like Karnataka and Andhra Pradesh. However, these states have shifted its gear to adopt various sectors to be incorporated in their priority list.

VI

SUMMARY

The above section has analyzed the differences and similarities between the markets for Venture Capital in India and the United States. In the American tradition, venture capital comprises management support and financial means for a subset of young high-technology enterprises provided by experienced intermediaries, i.e. the venture capitalists. Due to data limitations, all the results obtained here have to be interpreted with caution. Indian markets for venture capital differ considerably with respect to the industrial sector invested in enterprises‘ early and expansion stages. In Karnataka, for example, early stage investments accounted for mainly in IT and IT enabled sector, while in Gujarat the early stage investments are predominantly in infrastructure development. Assam has a potentiality of VCF investment in biotech, agri-based, and pharmaceutical sectors. The Indian markets for venture capital differ with respect to their sources of funds then US. In India, banks are the main contributors to entrepreneurial finance including venture capital, while in US now a day; pension funds play a significant role. Traditionally, pension funds have contributed considerable amounts of capital to VCF formation in the US, while in country as if India pension funds have never been active as capital providers. Financial Institutions have invested large amounts of capital in venture capital in Karnataka and Maharastra, while in the US banks have been getting less importance. In addition, the Indian markets differ with respect to governments‘ role in comparison to US. Some states in India use tax incentives for passive investors in order to ease the capital access for young high-technology enterprises, while others use guarantees and co-investment programs in order to reduce the risk of young high-technology enterprises for VCF. In comparison to the United States, some states of India like Karnataka have invested in enterprises‘ early stages having similar focused areas. US venture capital investments are more concentrated on high technologies than Indian VCF investments. In the United States, almost 80 per cent of the venture capital investments went into communications and computer-related enterprises in 1999, while only 27 per cent of the Indian VCF investments were invested in these enterprises. In addition to identifying the differences and similarities between different states of India in terms of VCF, the paper

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has also discussed the differences between VCF investors acting in one national market by analyzing micro data on Karnataka and Assam. VCF investors acting in one national market can differ significantly with respect to their investment behavior. The evidence of the Karnataka and the Assam market supports this view, while the results of the Karnataka market support it only to some extent in comparison to US. Karnataka‘s VCF investors differ considerably with respect to their investment strategies. Independent equity investors have a high degree of technological specialization compared to all other groups of dependent equity investors. Moreover, independent equity investors are more willing than subsidiaries of banks to invest capital in high-risk enterprises. The Karnataka market for VCF has not only experienced a significant upswing in the last few years but also a fundamental structural change towards financing high- technology enterprises. The Assam market, by contrast, has merely experienced a qualitative expansion. The number of private equity investors that are not legally connected to another company (i.e. independent equity investors) has increased significantly in India. These equity investors, in contrast to their dependent counterparts, act more like US venture capitalists, and make more intensive use specific control mechanisms such as convertible securities and compensation systems.

VII

EPILOGUE

From the above analysis, the following outcomes were emerged:

i. Socioeconomic environment in India is not compatible to American methodology of VCF.

ii. Control and ownership of enterprise is the inherent management practice with investors‘ limited access (with few exceptions) to it in the corporate sector in India.

iii. There is lack of local market for high technology products in India.

iv. It has been observed that in case of the VCF with government stake emphasize more on the overall development of the economy of the country/ region

than emphasizing on ROI of the projects at the micro level. Which appears to the researchers as not pragmatic in approach?

The characteristics of the American methodology for VCF can be summed up as:

i. More specific to high technology driven, envisaging fast growth.

ii. Long-term horizons classified into specific defined phases.

iii. Expectation of very high risks and return.

iv. Focused on start up stage.

v. Strict preference for equity financing and risk sharing.

vi. Pension fund is one of the major sources of VCF.

The differences between the US market and the Indian market for VCF with respect to the investments in young

high-technology enterprises although do not offer meaningful information on the development stage of the Indian venture capital markets but it provides many inputs for generating reforms in the Indian VCF market. The reason is that each market has its own, often-quite special, innovation system, which determines the role of venture capital in an economy. For example, when the innovation system is dominated by in-house research and development, one cannot expect a dynamic venture capital market. Moreover, the figures presented on venture capital activity in India do not include other financial sources for high- technology enterprises such as business angels, which are, however, important to determine the development stage of venture capital markets.

VIII

NOTES

1 In the US, new funds raised for private equity grew at a lower rate than new funds raised for venture capital

2 Pfirrmann, O., U. Wupperfeld and J. Lerner (1997). Venture Capital and New Technology Based Firms: An US- German Comparison. Heidelberg: Physica-Verlag.

3 NVCA Report, Special Annual edn. 2003 available at www.nvca.org first accessed on July 23,2004 4 SBIR (Small Business Innovation Research Programme) is

a highly competitive programme that encourages small

business to explore their technological potential and

provides the incentive to profit from its commercialization. By reserving a specific percentage of federal R&D funds for small business, SBIR protects the small business and enables it to compete on the same level as larger businesses. SBIR funds the critical start-up and development stages and

it encourages the commercialization of the technology,

product, or service, which, in turn, stimulates the US economy. 5 Ministry of Finance (1988). Venture Capital Guidelines, Press Release No. S.11(86)-CCI(11) / 87 Department of Economic Affairs, Office of the Comptroller of Capital Issues, November 25. 6 Ramesh, S., & Gupta, A. (1995). Venture capital and the Indian financial sector. Delhi: Oxford University Press. 7 It is true that in the United States, banks have never been an

important source of venture capital, even through their SBIC subsidiaries. For the most part, a bank‘s core competencies are in evaluating and taking loans. The problem with loans

to small startups is that the capital is at high risk, so any

interest rate would have to be usurious. Moreover, since the new firm is often losing money in its early days, paying interest and principal would drain money from the firm

during the period when it most requires the money for investment. 8 Mittal R, 2005.; ―Karnata Boom‖, Business World, vol 25, issue 3,p.52 9 ibid,p.54 10 Blau,J.R. and Alba, R.D.; 1982, ―Empowering nets of Participation‖. Administrative Science Quarterly, 27, 363-

379.

11 Carter, N.M., Williams, M. and Reynolds, P.D. 1997, Discontinuance among new firms in retail: the influence of

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initial resources, strategy and gender. Journal of Business Venturing, 12, 125-146. 12 Dossani R. & Kenney M., 2002; ―Creating an environment for venture capital in India‖; World Development Vol. 30, No. 2, pp. 227253

IX

REFERENCES

1) Blau,J.R. and Alba, R.D.; (1982), ―Empowering nets of Participation‖. Administrative Science Quarterly, Vol. 27, pp. 363-379. 2) Carter, N.M., Williams, M. and Reynolds, P.D. 1997, Discontinuance among new firms in retail:

the influence of initial resources, strategy, and gender. Journal of Business Venturing, 12, 125-

146.

3)

Dossani R. & Kenney M., 2002; ―Creating an

4)

environment for venture capital in India‖; World Development Vol. 30, No. 2, pp. 227253 Mittal R,2005.; ―Karnata Boom‖, Business World,

vol 25, issue 3,p.52

5) Ministry of Finance (1988). Venture Capital Guidelines, Press Release No. S.11 (86)-CCI (11) / 87 Department of Economic Affairs, Office of the Comptroller of Capital Issues, November 25.

NVCA Report, Special Annual edn. 2003 available

at www.nvca.org first accessed on July 23, 2004 Pfirrmann, O., U. Wupperfeld and J. Lerner (1997). Venture Capital and New Technology Based Firms: An US-German Comparison. Heidelberg:

6)

Physica-Verlag. 7) Ramesh, S., & Gupta, A. (1995). Venture capital and the Indian financial sector. Delhi: Oxford University Press.

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Modelling Armed Robbery Crime Insurance Claims in Nigeria

Dr Hamadu Dallah Department Actuarial Science and Insurance Faculty of Business Administration University of Lagos, Akoka, Lagos, Nigeria Email: Dallaram2007@yahoo.com Tel: +2348039094884

Abstract- The objective of modelling claims sizes of insurance policies was to be able to price premiums as accurately as possible. In parametric modelling of loss distributions in actuarial studies, an attractive candidate with tail weight intermediate between that of Gamma and Pareto distributions is the lognormal model. This paper investigates the distribution of claims of Nigerian armed robbery insurance crime data. Using expert model mining system, the 3- parameter lognormal distribution demonstrated itself as the best candidate. The result was quite revealing and in agreement with previous studies, recommending lognormal model for the analysis of right skewed general crime insurance claims data. In addition, it has also provided a good estimate of the deductible amount in claims management. Finally, the estimated data-based lognormal risk premium amount could provide the required basic framework for policy premium underwriting in Nigerian general armed robbery crime insurance market.

Keywords- General Crime Insurance, Armed Robbery Claims Data, Lognormal Model, Deductible, Expert Model Mining System.

I

INTRODUCTION

A n insurance contract (policy) binds an insurance company in the occurrence of contractually defined

loss events to pay a specified amount (claim) to the insurance holder. In return, the insurance holder pays a fixed sum (premium) to the insurance company. Since claim amounts usually depend on the dimension of losses, insurance companies offer uncertain future payoffs for a certain premium at present. This constellation generates three interesting phenomena studied in the literature:

adverse selection (bad risks are likely to demand coverage than good ones), moral hazard (insurance holders behave careless as they do not have to bear the losses), and calculation of premiums (Bohme, 2005). Therefore, each form of insurance has its background of occurrences, which result in sudden and unforeseen financial shocks to individuals or to groups of individuals, and, therefore, create contingencies against which protection is desirable. Certain crimes are the background for burglary, theft, and robbery insurance and because these crimes are spectacular, and have always had publicity value. Usually, in this context the statistics published represent conditions at their worst. They are taken from congested centre like Lagos where property values are concentrated and burglaries and armed robberies

are, therefore, of mostly frequent; they represent those trades which are particularly the target of criminals. The data are compiled from the records of insurance companies, and consequently may be said to typify the experience of those who recognise the fact that they are peculiarly exposed to hazards against which protections are necessary. Nevertheless, these information point to an alarming situation in case the complete crime records for Nigeria could be compiled it will be of considerable magnitude both in term of crimes and in loss of life and property. Nigeria is ranked number one in “burglary and armed robbery crimes” in Africa even though this position is of recent being challenged by South Africa. In fact, a study on armed robbery conducted in South Africa by Pretorius (2008) has shown that “ the experience of being robbed and violently assaulted left the victims with feelings of ontological insecurity, xenophobia and distrust for strangers, fear of crime and little confidence in the government and police to maintain law and order. The manner in which short-term insurance claims were negotiated and the amount of money eventually paid, was a final source of frustration and disgust for many respondents”. The situation is not quite different in Nigeria where everybody, firm, cooperation, and even government valuable properties are subject to attached by burglars and robbers. In fact, in Nigeria there is even passive synonymy between burglary and armed robbery, which usually carry capital punishment. Nowadays, it is common to hear information that state government heavily protected/guarded convey being attacked by robbers. Furthermore, it is a commonplace that everyday-armed robbery crime in Lagos metropolitan city, causes immense economic, psychological damage and even loss of life, although the true extend is still difficult to quantify. There is need for urgent investigation in the covered claims paid by insurance companies. The purpose of modeling claim sizes is to price premiums as accurately, and to estimate the risk of extreme claim events, which are unfortunately frequent in armed robbery insurance. In this context, much attention has been paid in the actuarial literature to alternative distributions for claim sizes and some authors have developed regression models (usually generalized linear models) for explaining claim sizes as a function of risk factors (see Haberman and Renshaw, 1996). Jorgensen and de Souza (1994), Smyth and Jorgensen (2002) Heller, Stasinopoulos and Rigby (2007) have considered in their

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various studies, models for claim sizes, including zero claims. Our study differs quite slightly of these since the zero claims were not compiled in our case study data. On the other hand, one of the more perplexing problems encountered in the fitting of claim amount data to a theoretical probability distribution, is that caused by the presence of deductibles. Claims are paid only on losses whose severity exceeds the deductible amount. Several authors (Duval and Allen (1973), Schott (1979), Smith and Head (1978)) have investigated the implication of deductibles on both the insurer and the insured. In each of these cases, it is assumed that the distribution function of the true loss amount is known. This work deals with fitting the log-Normal distribution to loss data with an unknown constant deductible. For case, multiple deductibles see Marlin (1984).

II DATA DESCRIPTION

In this paper, we consider armed robbery policy exposure and claims experience data derived from general crime insurance portfolios of a major general insurance company in Nigeria. Our data are from WAPIC Insurance, a subsidiary of Intercontinental Bank Plc. which was incorporated in 1958 as a private limited liability insurance business in Nigeria. WAPIC Insurance Plc is a composite full-line insurance company offering a range of products and services covering life and pension, general and special risk businesses. The observations are from each policyholder over a period of four years: November 2000 until November 2004. Thus, our data come from financial records of WAPIC insurance policies, we consider only the claims file, which provided the record of each armed robbery crime claim that

have been filed with the insurer during the observation period, and the payment amount made.

III EXPLORATORY DATA ANALYSIS

Before tackling the method of fitting the enabling stochastic model to the data, it is important to perform an exploratory data analysis (EDA) to our data. EDA as opined by Hoaglan and Tukey (1977) will provide not only preliminary insights to the data, but also, guide us on the future choice of the appropriate model. In addition, it also brings out certain hidden features of data, which can go unnoticed by the investigator without performing in-depth EDA. The following table 3.1 shows the summary of most important descriptive statistics of the armed robbery insurance claims data.

From the table 3.1 above, the first striking observation on the result is the dramatic difference between the mean claim (N 234, 452.71) amount and the median claim (N 43,316.25) amounts which is of a ratio1 to 5. This positive skewed nature of the data can be easily substantiated by the magnitude of the coefficient of skweness (4.368). In addition, the situation can be easily confirmed from the Histogram and Box-and-Whisker plots displayed in Figure 3.1 and Figure 3.2 respectively.

Table 3.1: Summary of Some Important Descriptive Statistics

Armed Robbery Claims Amount

Statistic

Std. Error

Mean

234452.7129

39095.48785

95% Confidence Interval for Mean

Lower Bound

   

157360.4680

 

Upper Bound

 

311544.9577

5% Trimmed Mean

133450.6004

 

Median

43316.2500

 

Variance

307219891181.304

 

Std. Deviation

554274.20216

 

Minimum

106.72

 

Maximum

4583716

 

Range

4583609.40

 

Interquartile Range

139761.26

 

Skewness

4.368

.172

Kurtosis

23.803

.341

Expected Normal

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Histogram

200 150 100 50 0 0.00 1000000.00 2000000.00 3000000.00 4000000.00 5000000.00 Frequency
200
150
100
50
0
0.00
1000000.00
2000000.00
3000000.00
4000000.00
5000000.00
Frequency

robbery

Figure 3.1: Distribution of Armed Robbery Insurance Claim

4000000.00

2000000.00

0.00

194

robbery

Figure 3.2: Box-and-Whisker Plot of Armed Robbery Insurance Claim

Moreover, the median lies outside the confidence intervals of the mean claim amount [N 157,360.47, N311, 544.96]. These results coupled with the non-normality results of the

Q-Q and P-P plots of Figure 3.3 and 3.4 respectively, are suggesting an appropriate choice of a right skewed and heavy tailed probability models. With the coefficient of kurtosis of 23.80, the versatile choice between with tail weight intermediate between that of gamma and Pareto distributions will be the lognormal or loglogistic distributions. We consider in this study the 3-parameter lognormal as the choice model.

Normal Q-Q Plot of robbery

lognormal as the choice model. Normal Q-Q Plot of robbery 3 2 1 0 -1 -2

3

2

1

0

-1

-2

-3

-2,000,000

-1,000,000 0 1,000,000 2,000,000 3,000,000
-1,000,000
0
1,000,000
2,000,000
3,000,000

4,000,000

5,000,000

Observed Value

Figure3.3: Q-Q Plot Normal Plot of Armed Robbery Insurance Claim

Normal P-P Plot of robbery

1.0 0.8 0.6 0.4 0.2 0.0 0.0 0.2 0.4 0.6 0.8 1.0 Expected Cum Prob
1.0
0.8
0.6
0.4
0.2
0.0
0.0
0.2
0.4
0.6
0.8
1.0
Expected Cum Prob

Observed Cum Prob

Figure 3.4: P-P Normal Probability Plot of Armed Robbery Insurance Claim Data

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IV

METHODS

A. Lognormal Distribution

The three-parameter lognormal distribution is one the most popular distributions in actuarial and management fields. With a variable y and three parameters, and, the probability density function is expressed by

f

(

y

;



,

,

)

1 2  ( y   )
1
2
(
y 

)

exp   

ln((

y

)/

 

2

2

2

(1)

Where, y , 0,0

In addition, the likelihood function is expressed by

L

(,,)

n

i 1

f

(

y

i

,,,)

(2)

Let us denote the lognormal model as

Y exp(X )

Where represents the threshold value and X is normal a random variable with mean and standard deviation. Our focus in this paper is on the estimation of the mean of lognormal distribution,

 E Y

(

)

exp(

2

/ 2)

(3)

In addition, find a good estimator to it. Let us set =0 without loss of generality, then we have the

define by the cumulative distribution

function (cdf)

lognormal

model

F

(

y

) 

ln y

  ,

y

0

The density function is subsequently given by

f

(

y

)

d

dy

F

(

y

)

ln y

y

,

y

0

Hence making substitutions, so that dx exp(z ) , so that we can easily obtain the moments

E Y

(

k

)

0

y

k

f

1

2

e



(

y dy

)

1

2

z

k

2

0

y

k

ln

y

)


dy

y

k

2

2

k

e

k

2

2

k

Therefore, the lognormal mean and variance are given as follows

 E Y

(

)

e

2

2 Variance

V

(

Y

)

e

2

2

(

e

2

1)

Consider a data set yi (1i n) , which, are independent

claim amount observations. Let us assume y1 y2

, then the maximum likelihood estimators (MLE) of the location and the scale parameters are.

yn

ˆ

n

1

n

i 1

log

y

i

And

ˆ  

n

1

n

i 1

log

y

ˆ

i

ˆ

2

ˆ

2

1

2

(4)

These yield the MLE of the mean,

the

estimators ˆ and ˆ each having the favorable properties

of converging to their respective parameters and having minimal asymptotic variance. However, in this case, the threshold parameter is unknown and must be estimated from the data with the two other location and scale parameters. Since log( y ) obeys a normal distribution,

L(,,) achieves its maximum at a point

ˆ

 e

2

,

and

ˆ

ˆ

  

0

,

(

0

)

,

(

0 )

provided that is fixed to

0

,

where

ˆ

(

)

1 n
1
n

ˆ

(

n

log(

i 1

y

i

)

exp

1

n

)

n

i 1

log

(

)

log(

y

i

ˆ

2

And

)

(5)

Consequently, if we want to obtain the maximum likelihood

estimate, it suffices to find an ,

) achieves its maximum. However,

because of the fact that,

becomes unbounded. As pointed out by Komori and Hirose (2001), the other parameters then lead to inadmissible values. Several authors (Hill, 1963; Wingo, 1984; Hirose, 1997) have treated the methods of finding the maximum estimates of 3-parameter lognormal model. In fact, Komori and Hirose (2001) have proposed an easy estimation by a new parameterization in the three-parameter lognormal model by proposing a new computing method for the

primary relative maximum of the likelihood function. In

addition, stochastic distributions like the Log-logistic,

Gamma and other competing distributions are also being included in the present study.

such that

L L  

(

ˆ(

)

ˆ

ˆ

()

,

()

,

Lˆ() asy

n

, L(,,)

B. Kolmogorv- Siminov Test

The Kolmogorov-Smirnov (K-S) test is based on the

empirical distribution function (ECDF). Given N ordered

data points Y 1 , Y 2 ,

, Y N , the ECDF is defined as

Y 1 , Y 2 , , Y N , the ECDF is defined as (6)

(6)

Where n(i) is the number of points less than Y i and the Y i are ordered from smallest to largest value. This step function increases by 1/N at the value of each ordered data point.

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Considering the following hypothesis statement H 0 : The data follow a specified distribution H a : The data do not follow the specified distribution

The Kolmogorov-Smirnov test statistic ( D) is defined as

D

max

1  i N

F Y

(

i

)

i

1

i

N

,

N

(

F Y

i

)

(7)

Where F is the theoretical cumulative distribution of the distribution, being tested which must be a continuous distribution. The hypothesis regarding the distributional form is rejected if the test statistic, D, is greater than the critical value obtained from a table. There are several variations of these tables in the literature that use somewhat different scaling for the K-S test statistic and critical regions.

There is no need for the K-S tables in the work since the software programs used gives both the K-S test and the critical probability values.

V ANALYSIS RESULTS

A. Summary Results and Discussion

The following Table 5.1 and 5.2 gives the summary of results of the best three competing models. The results include parameters estimates and goodness of fit the simulated distributions. (For the full results, see Appendices I and II):

Table 5.1: Summary of Parameters Estimates for the Best Three Fitted Distributions

Lognormal (3P)

1.9113 10.704 5.6732

Lognormal(P)

1.9128 10.703

 

Log-Logistic (3P)

0.88352

44571.0

106.72

Table 5.2: Summary of Kolmogov Sminov Goodness of Fit for the Best Three Distributions

Lognormal (3P)

0.02936

1

Lognormal (2P)

0.02941

2

Log-Logistic (3P)

0.03683

3

We can easily observe Tables 5.1 and 5.2 that, the three- parameter lognormal distribution is the best candidate for the data. With Kolmogorov Siminov goodness of fit coefficient of 0.02936, it ranks first and subsequently, outperforming other competing distributions. Closely following is as expected the two-parameter lognormal distribution and the three-parameter log-logistic distributions with goodness of fit coefficients of 0.02941and 0.036 respectively. These findings support the theoretical choice of the model for the robbery claims data. In fact, by closely examining the distribution and P-P Probability plots in figures 5.1 and 5.2 the EDA results supports our analytical choice of the model. On the other hand, a close look at the Q-Q plot displays in Figure 5.3 demonstrated the adequacy and suitability of the fitted model but also raised a cautionary note on possible two possible outlying values

which in future call for the use of robustness in insurance claims management.

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Probability Density Function

0.96

0.88

0.8

0.72

0.64

0.56

0.48

0.4

0.32

0.24

0.16

0.08

0

0.96 0.88 0.8 0.72 0.64 0.56 0.48 0.4 0.32 0.24 0.16 0.08 0 0 2E+6 x

0

2E+6

x

0.8 0.72 0.64 0.56 0.48 0.4 0.32 0.24 0.16 0.08 0 0 2E+6 x Histogram Lognormal
Histogram Lognormal (3P)

Histogram

Lognormal (3P)

4E+6

Figure 5.1: Distribution of Fitted 3-parameter Lognormal Model to the Armed Robbery Insurance Data

P-P Plot

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0 0.2 0.4 0.6
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0
0.2
0.4
0.6
0.8
1

P (Empirical)

Lognormal (3P)

Lognormal (3P)

Figure 5.2: P-P Plot 3-Parameter Lognormal Model to Armed Robbery Insurance Data

4.4E+6

4E+6

3.6E+6

3.2E+6

2.8E+6

2.4E+6

2E+6

1.6E+6

1.2E+6

800000

400000

0

Q-Q Plot

2.8E+6 2.4E+6 2E+6 1.6E+6 1.2E+6 800000 400000 0 Q-Q Plot 0 2E+6 x Lognormal (3P) 4E+6

0

2E+6

x

Lognormal (3P)

Lognormal (3P)

4E+6

Figure 5.3: Q-Q Plot 3-Parameter Lognormal Model to Armed Robbery Insurance Data

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Thus, the estimated fitted lognormal mean is given as follows

ˆ

ˆ



exp( ˆ

ˆ

2 / 2)   276,651.4 5.6732

exp 10.704

(1.9113

2

B. The Risk Premium Estimate

/ 2)

The basis of the estimate of the risk premium risk premium is the estimate of the total loss R. this is given as

ˆ

( ˆ

R N

exp( ˆ

ˆ

2

/ 2))

201

276651.4

55606931

With an estimated mean claim of N 276,651.4 yields an estimate risk premium of N 55,606,931

VI

CONCLUSION

Motivated by the alarming rate of armed robbery crimes generally in Nigeria and Lagos state in particular, we investigated empirically the distribution of claim amounts paid by Nigerian general crime insurance company to their policies holders‟ victims of armed robbery. The lognormal model was considered not based only on theoretical ground, but also from preliminary EDA results. Using expert model mining procedure, the 3-parameter lognormal distribution demonstrated a superior level of adequacy and goodness of fit over other stochastic claims distribution models. The present findings provided good empirical reasons to support previous theoretical and empirical results, which favor the lognormal distribution as an appropriate model when modeling claims data specifically, with intermediate tail weight between the gamma and Pareto distributions. It is also important to note the slight difference between the usual two-parameter lognormal distribution popularly used in modelling returns stochastic volatility in empirical finance and the three-parameter lognormal model, which make a strong case for an estimated deductible of about N 1,140 in actuarial studies and practice. Finally, it is important to have a critical look at the financial implication of the estimated lognormal data-based risk premium amounts of about N55,606,931, in future premium underwriting for both existing policy holders and new customers in Nigerian emerging market economy.

VII

REFERENCES

1) Bohme, R. (2005), Cyber-Insurance Revisited.

2)

Workshop on the Economics of Information Security (WEIS) 2005, Kennedy School of Government, Cambridge, MA, USA. Duval, R. M. and Allen, T. C. (1973), „Least Cost

3)

Deductible Decisions‟, The Journal of Risk and Insurance, 40, 495507. Haberman , S. and Renshaw, A. E. (1996),

„Generalized Linear Models and Actuarial Science‟, The Statistician, 45, 407-436. 4) Hill, B. M. (1963), „The Three-parameter Lognormal Distribution and Bayesian Analysis of a

Point-source Epidemic‟, Journal of American Statistical Association, 58, 72-84

5) Hirose, H. (1997), „Maximum Likelihood

Parameter Estimation in the Three-parameter Lognormal Distribution Using the Continuation Method‟, Computational Statistical Data Analysis, 24, 139-152. Jorgensen, B. and de Souza, M. C. P.(1994),

6)

„Fitting Tweedie‟s compound Poisson Model to Insurance Claims Data‟, Scandinavian Actuarial Journal, 69-93. 7) Omobola, J. (2008), „Transformatio9n and Insurance Growth in Nigeria‟ Accenture 7

April,2008.

8) Marlin, P. (1984), „Fitting the Log-Normal Distribution to Loss Data Subject to Multiple Deductibles‟, The Journal of Risk and Insurance, 51, 687-701. 9) Schott, B. (1979), „Annual Losses for Straight Deductible Coverage‟. The Journal of Risk and Insurance, 46, 619-635. 10) Smyth, G. K. and Jorgensen, B. (2002), „Fitting Tweedie‟s compound Poisson Model to Insurance Claims Data: Dispersion Modeling‟, ASTIN Bulletin, 32, 143-157. 11) Smith, M. L. and Head, G. L., (1978), „Guidelines for Insurers for Pricing Deductibles‟, The Journal of Risk and Insurance, 45, 217-238. 12) Wingo, D. R. (1984), „Fitting Three-parameter Lognormal Models by Numerical Global Optimization-an Improved Algorithm‟, Computational Statistical Data Analysis, 2, 13-25.

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VIII

APPENDIX

Appendix I Fitting Results

#

Distribution

Parameters

1

Beta

1 =0.14219 2 =2.1991 a=106.72 b=4.5837E+6

2

Cauchy

=33439.0 =27234.0

3

Chi-Squared

=2.3445E+5

4

Chi-Squared (2P)

=2.2474E+5 =98.183

5

Error Function

h=1.2757E-6

6

Exponential

=4.2653E-6

7

Exponential (2P)

=4.2672E-6 =106.72

8

Fatigue Life

=3.071 =40194.0

9

Fatigue Life (3P)

=2.5141 =60735.0 =-902.16

10

Frechet

=0.6352 =17808.0

11

Frechet (3P)

=0.91368 =13843.0 =96.212

12

Gamma

=0.17892 =1.3104E+6

13

Gamma (3P)

=0.38085 =6.1617E+5 =106.72

14

Gen. Extreme Value

k=0.69501 =70701.0 =37087.0

15

Gen. Pareto

k=0.65115 =87102.0 =-15229.0

16

Gumbel Max

=4.3217E+5 =-15000.0

17

Gumbel Min

=4.3217E+5 =4.8391E+5

18

Inv. Gaussian

=41949.0 =2.3445E+5

19

Inv. Gaussian (3P)

=12663.0 =3.1867E+5 =97.787

20

Johnson SB

=2.3157 =0.50188 =5.9222E+6 =-20527.0

21

Laplace

=2.5515E-6 =2.3445E+5

22

Log-Logistic

=0.91777 =43489.0

23

Log-Logistic (3P)

=0.88352 =44571.0 =106.72

24

Logistic

=3.0559E+5 =2.3445E+5

25

Lognormal

=1.9128 =10.703

26

Lognormal (3P)

=1.9113 =10.704 =-5.6732

27

Normal

=5.5427E+5 =2.3445E+5

28

Pareto

=0.16575 =106.72

29

Pert

m=106.72 a=106.72 b=4.5837E+6

30

Power Function

=0.06466 a=106.72 b=4.5837E+6

31

Rayleigh

=1.8707E+5

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32 Rayleigh (2P)

=4.6280E+5 =-127.0

33 Student's t

=2

34 Triangular

m=106.72 a=106.72 b=4.5837E+6

35 Uniform

a=-7.2558E+5 b=1.1945E+6

36 Weibull

=0.6351 =1.0622E+5

37 Weibull (3P)

=0.54574 =1.1510E+5 =106.72

38 Erlang

No fit

39 Erlang (3P)

No fit

40 Johnson SU

No fit

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Appendix II Goodness of Fit Summary

 

#

Distribution

Kolmogorov Smirnov

Statistic

Rank

1

0.35471

21

2

0.28305

16

3

0.80099

36

4

0.79602

35

5

0.50008

29

6

0.36437

24

7

0.36462

25

8

0.10061

8

9

Fatigue Life (3P)

0.12118

9

10

0.084

5

11

0.21106

15

12

0.30964

18

13

0.14627

11

14

Gen. Extreme Value

0.14724

12

15

0.15504

13

16

0.38074

27

17

0.40507

28

18

0.19953

14

19

Inv. Gaussian (3P)

0.13214

10

20

0.30158

17

21

0.36295

23

22

0.03965

4

23

Log-Logistic (3P)

0.03683

3

24

0.34066

20

25

0.02941

2

26

Lognormal (3P)

0.02936

1

27

0.33622

19

28

0.35501

22

29

0.61559

32

30

Power Function

0.58063

31

31

0.548

30

32

0.72301

34

33

0.99996

37

34

0.71756

33

35

0.37795

26

36

0.08883

7

37

Weibull (3P)

0.08703

6

Source: EasFit Expert Model Mining

 

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Promoting an Emerging Tourism Destination

Bassey Benjamin Esu (corresponding author) Lecturer, Department of Marketing University of Calabar PMB 1115, Calabar, Nigeria 08034740556, esubenjamin@yahoo.com Ezekial Ebitu Lecturer, Department of Marketing

University of Calabar, PMB 1115, Calabar, Nigeria

08039451333

Abstract- Emerging tourist destinations have unique characteristics, which differentiate them from matured destinations or destination at their decline stage. Destination Marketing Organizations (DMOs) have the responsibility of creating, attracting, and retaining valued customers, in this case, tourists to the destinations. One way of achieving these functions is through effective promotional strategies of destinations. This study attempts to highlight the relevance of promotional strategy to tourism development, tourism enterprise planning. The major crux of the paper is the conceptualization of a model for the development of promotional strategies for emerging tourism destination.

Key words- Emerging tourism destination, promotional strategy, marketing, destination marketing organization, attractions, and festivals.

I

INTRODUCTION

T ourism and hospitality sector is the fasted growing sector of global economic. This claim is supported by

statistical data from regional, national, and international studies (WTO, 2000; WWTC, 2005). Globalization of the tourism market has made tourism business environment more complex. This is because tourists whether inbound or out bound are in search of places and attractions that will optimally satisfy their touristic desires. The global choice of destination according to Henderson (2007) is growing and certain of these destinations have similar characteristics. This gives rise to a situation where one can be replaced by another as the notion of destination choice set implies.

Destination is commonly referred to as place in tourism parlance. Tourism destinations are places with tourists‘ attractions. Attraction can be manmade, natural, or cultural. The attraction and the benefit it offers are sometimes the reasons for visiting a destination.

Bassey Benjamin Esu is a lecturer in the Department of Marketing, University of Calabar. His current research interests include destination marketing and tourism economy. He has published in both local and international journals. He has a Ph.D in Marketing. He is Member of National Institute of Marketing of Nigeria. Tel: 234-0804740556, email: esubenjamin @yahoo.com. Dr Ezkial Ebitu H is a lecturer in Department of Marketing, University of Calabar, His research interests include entrepreneurial development and marketing. He has a Ph.D in industrial Sociology. Tel O8039451333.

An emerging tourism destination is conceptualised as a geo- political area where tourism has just been accepted as a major socio-economic development tool and where the community has expressed willingness to leverage the tourism potentials to enhance their socio-economic well- being. Every destination has a cycle with unique stages and characteristics. Examples of destinations that have entered the maturity stage are United Kingdom (UK), United States of America (USA), South Africa (SA), Kenya, etc. A good example of an emerging tourism destination is Nigeria. Nigeria has just begun taking tourism seriously. The past nine years has witness a conscious effort by some of the States (e.g. Cross River, Kebbi, Osun, etc.). Two common models on destination life cycle are Butler‘s Destination Area Cycle Model (Butler, 1980) and Doxey Irredex ( Doxey, 1975). Butler‘s model gives us an elaborate understanding of what a destination goes through from the time the community decides to take tourism as a serious economic development tool. The Butler‘s model is linked to the business/marketing concept of product life cycle. It is theoretically underpinned on the product life cycle. The product life cycle is a theory in which sales of a new product are seen to slowly grow and then experience rapid growth, before stabilizing and subsequently declining (Esu, 2005). When applied to tourism destinations, it suggests that destinations develop and change over time. Butler Destination Area Cycle Model is made up of a number of linked stages: exploration, involvement, development, consolidation, stagnation, and decline (post-stagnation).

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Figure 1 Hypothetical Evolution of a Tourist Area (Butler ,1980)

1 Hypothetical Evolution of a Tourist Area (Butler ,1980) Inferring from Butler‘s Model, some basic assumptions

Inferring from Butler‘s Model, some basic assumptions can be made about an emerging destination. An emerging tourism destination is characterized on the supply side by acceptance of tourism by government and the community as being strategic to the economic importance of the state; the introduction of strategies to actualize these visions (product design and development), the euphoria that accompanies the idea of having an identity as a tourism destination. On the demand side, there may be little or no awareness of destination by the market, lack of specific unique product to attract tourist, low visitor arrival, low tourists receipts, etc. Theoretically, destinations are promoted by the use of one or combination of promotional tools (advertising, personal selling, sales promotion, publicity, public relations and internet,). These activities undertaken by individuals or organizations want its voice to be head in the market place. The peculiarities that characterise an emerging tourism destination account for the need to advocate for specific strategies for the promotion of emerging tourists‘ destinations. Because of these peculiarities and the complexities in understanding tourists‘ behavior, it does appear that the traditional promotional tools are inadequate to generate appropriate consumer response especially in emerging tourism destination without a broad strategic approach. In this paper, we shall identify the importance of destination promotion, responsibility of Destination Marketing Organizations (DMOs) in destination promotion and propose a conceptual model for developing promotional strategies for emerging tourist destinations. Attempt shall also be made to capture some strategies commonly used by successful emerging destinations. It is expected that this paper will give some impetus to the frame-work for the rebranding of Nigeria which has just been launched by the President, Alhaji Musa Y‘adua.

II IMPORTANCE OF PROMOTION TO DESTINATION MARKETING

Destination promotion has the potentials of producing the following benefits:

i. Build awareness and interest in the destination and the attractions or products

ii. Differentiate the destination and its offering from competing destinations

iii. Communicate the physical and psychological benefits of products offered by the destination to the market

iv. Build and maintain the overall image and reputation of the destination

v. Persuade tourists to visit the destination and increase length of stay in destination

vi. Promotion can assist the destination management in leveling out peaks and valleys resulting from seasonality of demand

III RESPONSIBILITY FOR DESTINATION PROMOTION

Destination promotional function is primarily the responsibility of the Destination Marketing Organization (DMO). DMOs are organizations that have been established to promote specific destinations to potential travelers (Gartrell, 1994). Regional Tourist Boards may be regarded as marketed, agencies. Their role is to promote place. That is, attract visitors to destinations in these areas (Pattinson, 1990). Destination marketing is a collective effort that requires various organizations and businesses in a geographically limited area to harmoniously work together to achieve a common goal (Gransjo, 2003). Following the understanding that ‗place‘ can be marketing, tourism planners and marketers have made attempts to apply marketing principles to place or destination. One of such

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principles is ‗promotion‘. There is copious literature on place or destination promotion. One of such early works was that of Pattison (1990). Specifically, DMOs perform the following responsibilities:

i. They are non-profit organizations aim at generating tourist visitations for a given destination at a given period.

ii. Responsible for developing a unique image of the destination.

iii. Co-ordinating private and public tourist industry constituency.

iv. Providing information to visitors.

v. Leading the overall tourism industry at a destination.

IV CONCEPTUAL MODEL FOR DEVELOPING PROMOTIONAL STRATEGIES OF EMERGING TOURISM DESTINATION

Promotion refers to the communicative activity of marketing. It fills the perceptual and informational gaps that exist between suppliers of tourism (industry) and the tourists (market). Promotion involves the creation and dissimulation of information that the tourist need to take a purchase and consumption decision. Promotional strategy is a controlled integrated programme of communication methods and materials designed to present an organization and its products to prospective customers; to communicate need satisfying attributes of product to facilitate sales and thus contribute to long-run profit performance (Engel, Warshaw and Kinnear; 1991). Promotional activities must be consistent with the needs of the tourists and integrated with the other elements of the marketing mix. Information is used to position, market and sell destinations (Tunnard and Haines, 1995). The promotional strategies will serve as connect between the customers and the experience they are seeking. Since tourists have expectations, it has become necessary that these requirements form the bases of the promotional strategies of tourism destination. The development of effective promotional strategies demands more than just being aware of the tools of promotion. The peculiarities of emerging tourism destination make it imperative for a special model that will cater for these complexities. Tourist demand is influence by tourist needs and motivations. These two currents form the theoretical underpinning of tourism product consumption. The model has four components.

i. Analysis of destination drivers

ii. Formulation of destination communication objectives

iii. Strategy formulation

iv. Selection of promotional tools

A. Analysis Of Destination Drivers

Destination drivers are those attributes of the destination that can be associated with the destination and that correspond with the values and actual needs of prospective tourists and have the likelihood of evoking an image that will stimulate tourist‘s interest to visit such a destination. The destination attributes usually form a destination‘s attractiveness (Babu & George, 2008; Czech tourism, 2004). In real life we are aware of such generally shared associations; Mercedes=prestige, Volvo=safety, Kenya=safari, Porsche =wild driver, etc. The tasks at this stage is to determine the destination attributes the will build strong associations. A simple methodology proposed by Esu and Mdaze-Arrey (April 2009) in their paper on ―Branding of Cultural Festivals as Destination Attraction…‖ could be used to determine the destination attractions that will serve as a connect with the destination. The method begins with the generation of destination attribute, selection of significant attributes using two statistical techniques:

importance-performance analysis matrix and discriminant analysis to test significant associations with market segments. This is necessary because the attributes must agree with the tourist‘s value, needs, and motivations. A need is a state of disequilibrium that requires satisfaction. Motivation is the drive to satisfy the identified need. The concepts of push and pull factors are often used to explain the concept of need and motivation (Crompton, 1979; Dann, 1981). Push factors are the socio-psychological needs that will encourage a person to travel, while the pull factors is one in which the person is motivated, or arouse by the destination. The push factors are logical and temporary antecedents to pull factors. The destination must possess attributes that matches the tourist‘s needs before the tourist would respond positively to the promotional strategy. The attributes that show significant relationship with market segment are those ones that are conceptualise as destination drivers. Czechtourism (2004) suggest that a Destination Marketing Organisation should produce one strong association with which tourists can connect the destination. This idea is supported by the following assumptions:

―perception is more important than reality‖ and ―that success is not in the product, but in the minds of clients.‖ The destination‘s significant associations are personified to give the destination‘s brand personality.

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Figure 2: Conceptual framework for promotional strategy of emerging tourism destination

Analysis of destination drivers

Formulation of destination communication objectives

Destination promotion strategy formulation

Selection of promotion tools

Evaluation of the effectiveness of destination promotion

B.

Formulation

Of

Destination

Communication

can be communicated clearly to the target market. The

Objectives

message to be communicated links the tourist needs, motivation, and the destination. The strategy spells out what

Before the strategy is formulated, the destination promotion objectives should be established. For a comprehensive articulation of the destination promotion objectives, a knowledge of the VICE Model is necessary (Tourism Recreation research and Education Centre, 2004). VICE (visitor, industry, communities and environment) is an acronym for an international model that specifies the stakeholders‘ expectation in a tourist destination. The destination communication is usually aim at achieving the following stakeholders‘ objectives: Visitor (welcome, involve and satisfy visitors), Industry (achieve a profitable and prosperous industry), Communities (engage and benefit host communities), Environment (protect and enhance the locals).

C. Strategy Formulation

After determining the destination drivers and the formulation of the destination promotion objectives it seeks to achieve, the destination managers could then formulate activities that will attract the identified customer segments. This idea is in view of the fact that integrated marketing communication expert‘s belief that every contact a customer makes with the brand or organization is ―saying something‖. In this vein it is conceptualise that there are specific activities that can arouse the interest of tourist to visit the destination, thereby achieving destination promotional objectives. These activities form the bases of the promotion strategies of the destination. Strategy formulation entails the design and development of unique destination‘s associations and brand personality that jointly give the destination an image. It is generally known in marketing that a successful, product or service means nothing unless the benefit of such a service

to say about the destination in order to achieve the

destination promotion objectives.

D. Selection Of Promotion Tools

Promotion tools are devices, activities, or methods used by marketing managers to convey the desired message to the market in order to achieve any desired promotion objectives. There are five traditional promotional tools.

i.

Advertising

Is any paid form of non-personal communication about an

organization, product, service, or idea by an identified sponsor (Alexander, 1965). The issues in advertising are the

development message, design of the message and the choice

of media. The first one is the creative strategy (it involves

finding effective, memorable ways to operate on consumer‘s minds). The second is how the message will be said and the

third how it be heard by the consumer (it involves media selection and buying of space).

A quote by Steuart Britt in Esu (2003) buttresses the

importance of advertising to a tourism business. The quote says: ―Doing business without advertising is like winking at

a girl in the dark. You know what you are doing. But

nobody else does.‖ Advertising informs, persuades, educates, and reminds prospective or actual tourists about attraction and destination. According to Middleton (1988), the following media types are available to the tourist destination manager: TV, radio, newspaper, cinema advertising, consumer magazine, trade magazine, outdoor advertising, tourist board brochures and guides, commercial consumer guides, directive and yellow pages, exhibitions, in home magazines, direct mail, and door to- door

distribution.

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ii. Public Relations

v.

Publicity

Public Relations (PR) also has communication function. The British Institute of Public Relations defines Public Relations as ―the deliberate planned and sustained effort to establish and maintain mutual understanding between an organization and the public‖. It is a management function, which evaluates public attitudes, identifies the policies and procedures of an individual or organization with the public interest, and executes a programme of action to earn public understanding and acceptance (Moore and canfield, 1977).

Publicity refers to nonpersonal communications regarding an organization, product, service, or idea not directly paid for or run under identified sponsorship for making a sales (Belch & Belch, 2001). It is in the form of a news story, editorial, announcement about the organization and/or its product and services. The special techniques used for publicity include news release, feature articles, photographs, films, and videotapes.

vi.

Interactive/Internet Marketing

This promo tool is driven by the growth in information

PR is implemented from corporate, rather than from marketing funds. At the tactical level, PR may be used to create and exploit opportunities to communicate selected messages to the general public or target groups. Example of PR techniques includes press release, press launches, receptions, personality appearances and staged events, facility tour and participation in community activities.

technology. Included in this group are the internet, CD- ROM, and interactive televisions. Interactive media enable buyers and sellers to interact (Crevens and Piercy, 2006). The task at this stage is the selection of an optimal mix of

iii.

tools that will carry the message about the destination.

Sales Promotion

Another promotional technique is sales promotion. Belch & Belch (2001:21) define sales promotion as ―those marketing activities that provide extra value or incentives to the sales force, distributors, or the ultimate consumer and can stimulate short-term sales.‖ The part of sales promotion that takes place at point of sales is called merchandising.

Cravens and Piercy (2006) asserts that early in the process of developing the promotion strategy, it is useful to set guidelines as to the expected contribution for each. A mix of tools is prescribe because of the synergy derive from the combination. Each promotional tool has its strengths and weaknesses. A combination of tools will provide a trade-off thereby leading to increase effectiveness and impact on overall destination objectives.

Merchandising is the sum total of effort to move goods and

 

E.

Evaluation

Of

Effectiveness

Of

Promotional

services at the point of sale. Advertising and PR take place away from the point of sales, while sales promotion takes place at the point of sales. Middleton (1988: 165) defines point of sale ―as any location at which a purchase transaction takes place‖. Sales promotion techniques used by tourism marketing include: price cuts/sales offers, coupons, extra product, additional services, gift, passport schemes, extra commission, prize draws, parties/reception, and business and travel incentives, etc. The marketing objectives attainable by sales promotion are: leveling of demand, reward regular customers, Increase market share, secure dealer support and recommendation, achieve brochure display, improve dealer awareness of products, improve volume of sales through incentives, and improve display in distribution outlets.

Strategy

The evaluation of the effectiveness of a promotional strategy is in two parts. The first is the impact of the message content on the destination promotion objectives. The second part is the effectiveness of the promotional mix. In this paper, our focus is on the former. The effect of a destination promotion is expected to impact on two areas: (1) The effect on the perception of tourists at the generating areas and (2) the effect at the receiving areas {on the number of visitor arrivals (visitor), tourist receipts (industry), community benefit (community), and environmental sustainability (environment)}. At the tourist generating area, the Anholt Nation Brands

iv.

Index (ANBI) model could be used to assess the effect of

Personal Selling

Personal selling refers to person-to-person communication in which a seller attempts to assist and/or persuade prospective buyers to purchase the company‘s product, service or idea (Belch & Belch, 2001). Selling of tourism products and services falls into three types: (a) external point of sales (retail travel agency, ticket/booking desks),

the destination promotion campaign on the perception of prospective tourist (Mari, 2008). ANBI is an analytical framework of brand index which is based on six destination attributes: tourism, export, governance, investment and immigration, culture and heritage, and people. Tourism: Assess the level of interest by prospective tourist in visiting a country or destination because of a draw of natural and fabricated tourist attractions.

(b) internal- in house point of sales (reception desk in the

 

F.

Export

hotel and attraction sites) and (c) Reservation system via customer‘s home (booking and responding via direct mail, TV, radio and telephone calls).

Assess the public‘s image of products from each country and the extent to which consumers proactively seek or avoid products from the destination.

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G. Governance

The public opinion regarding the level of national government competency and fairness. It includes individuals‘ beliefs about the destination as well as perceives commitment to global issues, such as democracy, justice, poverty, and environment. Investment and Immigration: It measures the destination‘s power to attract people to live, work or study in it (perception of the economic and social situation). Culture and heritage: Measures the perception of the destination‘s heritage and tourists‘ appreciation of her cultural (including film, music, art, sport, literature, etc.). People: Determines the perception tourist hold about a destination‘s population. This is in terms of reputation, competence, education, openness, friendliness, etc.

V SPECIFIC PROMOTIONAL STRATEGIES FOR EMERGING TOURIST DESTINATION

i. The following strategies are commonly used by successful emerging tourism destinations.

ii. promote destination through small businesses

iii. promote destination through ensuring a positive community attitude

iv. promote destination through events /festivals

v. promote destination through destination marketing system

vi. Collective and collaborative destination marketing

vii. Promoting destination through film production

A. Promote Through Small Businesses

The role of small business in destination image is supported by Moutinho (1990). According to him, small businesses, like the large ones are part of the product offered by destinations. This is because overall experience is composed of numerous small encounters with a variety of tourism service providers. The promotion of quality and international best practices in service delivery in an emerging tourism destination has the potential of enhancing the destination‘s image and increase tourists traffic to the destination. The implication is that, (1) tourist enterprises will operate profitably in the destination, (2) tourists visiting the area will receive higher quality service, which can be leveraged for destination positioning, and (3) small businesses operating profitably will breed new services and broaden target market.

B. Promote Destination Through Ensuring A Positive Community Attitude

Destination managers should ensure that the locals are positively committed to tourism development (Inbakaran and Jackson (2005). This should be done through an inclusive approach that respects and involves the locals in all tourism promotional endeavors. It is difficult to garner the unlimited goodwill of the local communities in

promoting the destination without a cooperative marketing approach.

C.

Promote

Marketing System

Destination

Through

Destination

Information is used to position markets and sell destinations. One of such ways of creating and making information available to target markets is with destination marketing system (DMS). DMS is a destination database (Tunnard and Haines (1995). The challenge confronting DMS is to ensure that they have a product database that is capable of strong multi-media data; that is amenable to text, photographical, sound, and video clips. The trend in the organization and operation of DMS is the involvement of the private sector in the management. The various options according to Tunnard and Haines ( 1995) are: (1) a handover to private sector after the information stage, if there is an existing information call centre and wishes to continue operating it, (2) a joint venture operation with the private sector and (3) a cooperative venture owned by partners such as associations, and private sector players. This in essence means getting destination marketing out of the government ministries and putting the responsibility into the hands of autonomous and independent tourist boards. DMS has made it unnecessary for tourist boards to be positioned in the main street of the capital city in order to secure visibility or need to be in the originating market place (Bennett, 1999). According to Bennett (1999:53) ―any tourist destination which is not working on some form of DMS is losing the plot‖.

D.

Promote Destination Through Events /Festivals

The major role of staging event and festivals in a destination is to act as catalysts for attracting visitors, thereby increasing the tourist spending and length of stay in the destination. Events and festival also acts as image-makers for the destination. It creates a profile for the destination, which helps in target marketing and positioning (Getz, 1997). All these give the destination a competitive edge.

E.

Promote destination through governance

According to ANHOLT Nation Brand Index, governance is one critical area of a destination‘s attractiveness (Mari, 2008). Corruption, conflict, war, and human rights violation are some of the factors that can damage the image of a country and destination. Damage to a country‘s image shows that its citizens do not have realistic view of their own country and cannot get together to do something positive. These factors are regarded as brand ‗erodes‘. This is a common feature in most of the Less Developed Countries (LDC). The government should enshrine good and democratic principles in governance. The destination managers should launch a campaign that will rebrand the country or destination to give it a positive image in the international community.

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F. Collective and collaborative destination marketing

Promoting a destination requires a collective and collaborative effort of all stakeholders in the destination. Collaborative process refers to a process of shared decision making among all key stakeholders of a destination (Gray, 1985, 1989).

G. Promoting destination through film production

Emerging destinations could enjoy competitive advantage with film tourism. Hudson and Ritchie (2006) suggest that DMOs would be more successful if they were first proactive in promoting the film in their locations and then proactive in promoting the film location after release of the film in generating areas.

VI CONCLUSION

Emerging destinations have unique characteristics, which differentiate them from destinations in the maturity stage. Destination managers and marketers require this understanding in the marketing and promotion of such destinations. Since emerging destinations are theoretically in the first and second stages of the Butler‘s destination cycle model, DMOs should adopt promotional strategies that are product-oriented. By this, we mean that the physical, social, cultural, and psychological components of the destination should form the bases of destination strategy formulation. The set of promotional strategies suggested in this paper are derived from extensive review of literature about successful tourism destinations. The scientific community holds the concept of cause effect relationship as sacrosanct. It is based on a truth that the authors argued for seamless means of communicating an emerging destination to the generating areas. These strategies would create niche markets for the destinations. It will also differentiate the emerging destinations distinctively from the mature destinations.

VII REFERENCES

1) Alexander, R. S. (1965). Marketing definitions. Chicago: American Marketing Association. 2) Belch, G. E. & Belch, M.A.( 2001). Advertising and Promotion: An Integrated Marketing Approach .5th edition. Boston: McGraw-Hill/Irwin.

3)

Bennett, O. (1999). ―Destination Marketing into the Next Century‖. Journal of Vacation Marketing, 6 (l): 45-54.

4) Butler, R. W. (1980). [Online].

Avaialble:http://www.destinationrecovery.com/dest inationlifecycle.html. Czech Tourism. (2001). Promotional strategy of the Czech Republic in 2004 -2010.[Online]. Available

5)

at http://www.czechtourism.com

Cravens, D. W.& Piercy, N. F. (2006). Marketing strategy (8th edition). Boston: McGraw-Hill.

7) Crompton. J. L. (1979). Motivation for pleasure vacation. Annals of Tourism Research, 16: 408-

6)

424.

8) Dann, G.M.S. (1981). Tourist Motivation: An

Appraisal‖. Annals of Tourism Research, 8:187-

219.

9) Doxey, G. V. (1976). When Enough‘s Enough:

The Natives are Restless in Old Niagara. Heritage Canada, 2 (92: 26-27. 10) Edward, M. & Babu, P.G. 2008. Destination attractiveness of Kerala as an international tourist destination: Importance performance analysis. A paper presented in India at a conference, Tourism in India, challenges ahead held at IIMK on 15 th - 17 th , May, 2008. 11) Engel, J. F., Warshaw, M. R. &Kinnear,T. 1991. Promotional strategy: Managing the marketing communication process .7th edition. Boston: Irwin 12) Esu, B. B. & Mbaze-Arrey, V. (2009). ―Branding of Cultural Festival as Destination Attraction: A Case Study of Calabar Carnival‖ International Journal of Business Research,2 (3): 182-192. 13) Esu, B. B. (2005). Introduction to Marketing, Calabar: Jochrisam. 14) Gartrell, R. B. (1994). Destination Marketing for Convention and Visitor Bureaus. Iowa:

Kendell/Hunt Publishing Company. 15) Getz, D. (1997). Event Management and Event Tourism. New York: Cognizant Communication Corp. 16) Gray, B. (1985). Condition facilitating inter- organisational relations. Human Relations, 38(10)

:911-936.

17) Gray, B. 1989. Collaboration. San Francisco: Josey Bass. 18) Grangsjo. Y.( 2003). ―Destination Networking: Co- opettion in Peripheral Surroundings‖. International Journal of Physical Distribution and Logistics Management, 33(5): 427-448. 19) Inbakaran, L. & Jackson, M. (2005). ―Marketing

Regional Tourism : How Better to Target and Address Community Attitudes to Tourism‖, Journal of Vacation Marketing, 11: 323-339. 20) Henderson, A. (2007). Environment and Tourism . 2nd edition. London: Routlege. 21) Hudson, S. & Ritchie, J. R. (2006). Promoting destination via film tourism: An empirical identification of supporting marketing initiative. Journal of Tourism and Travel Research, 44, 387-

396.

22) Mari, A.( 2008). Place branding: Promoting a nation teaching marketing. Available at http:/alexmari. Blogspot.com/2001/place marketing promoting-nation. html 23) Moore, H. F. & Canfield, B.R. (1977). Public relation: Principles, cases and problems. 7thedition. Burr-ridge: Irwin.

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24) Moutinho, L,( 1990). Strategies for tourism destination developemt: An investigation of the role of small business. In G. Ashworth and B. Goodall (eds). Marketing Tourism. London:

Routledge. 25) Pattinson, G. (1990). Place promotion by tourist bo/documentstore/d ard: The example of beautiful Berkshire. In Tourism Recreation Research and education centre (2004). Tourism planning toolkit for local Government.[Online ]. Available:

http://www.travel.state.tx.us eveloping%20tourism%20 our%20community.pdf. 26) Tunnard, C. R. & Haines, P. (1995). Destination Marketing System: a New role for Tourist Bboard marketing in the information age. Journal of Recreation Marketing, 1(4): 393-399 27) WTO. (2000). Year Book of Tourism Statistics. Madrid: World Tourism Organization. 28) WTTC. (2005). Annual Report, Progress and Priorities 2004/05. The World Travel and Council.

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Are the Global Stock Markets Inter-linked? Evidence from the Literature

Gagan Deep Sharma Senior Lecturer and Coordinator Department of Management Studies, BBSBE College, Fatehgarh Sahib B.S. Bodla (Dr.) Professor, University School of Management, Kurukshetra University, Kurukshetra

Abstract- Opening-up of the financial markets of the world for foreign capital has led to the increased financial integration among different countries. This paper reviews and summarizes the research on the subject of integration and dynamic linkages between stock markets in different parts of the world. Majority of the studies suggested that market integration has increased significantly over the years, within an international context. We find that not many studies have concentrated on the interaction of Indian markets with the foreign markets, and most of the studies concerning Indian have concentrated at the inter-relationship of Indian stock market with those of the Developed nations. Therefore, there is a scope to study the inter-linkages between Indian stock markets and those of the other SAARC nations.

Keywords- Financial integration, dynamic linkages, SAARC Nations

I

INTRODUCTION

T he present global business environment is presenting unique set of opportunities and challenges to the

business organizations, consumers and the investors. During the last 20 years, the world is living in a new era of globalized economies and capital markets. Companies, and capital, ―cross‖ countries‘ borders in order to take advantage of arbitrage opportunities and to cover regional market imperfections (Grubel 1968). As the fruits of economic integration of the world spread across the globe, masses are

moving up the value chain. This makes people look for some highly rewarding investment avenues. As a result, a number of new and old investment avenues are getting popular in recent times. Equity markets are one of the most rapidly developing investment avenues, of late. Across the globe, a broad movement towards an equity culture has taken root as traditional bank financing takes a back seat to the emergence of globally interconnected capital markets. Interaction of financial markets is one of the most extensively discussed topics of financial literature. Various factors contributed in this dimension. These include cross border movement of funds, the technological innovations in communications, scientific trading, and settlement systems, and the introduction of innovative financial products. Globalizations also played a pivotal role in increasing theinterest in the study of dynamic inter-linkages among financial markets (Hasan, Saleem and Abdullah, 2008).

Levine and Zervos (1996) pointed out that the perfect capital market integration needs the free flow of capital across international borders to equate the price of risk. If there exists any capital controls or other barriers impede the movement of capital, the price of risk tends to be different internationally. The issue of financial integration has strong implications on financial stability. On the one hand, financial integration would benefit the region through more efficient allocation of capital, a higher degree of risk diversification, a lower probability of asymmetric shocks, and a more robust market framework (Pauer (2005). These effects would help improve the capacity of the economies to absorb shocks and foster development. Moreover, financial integration may also promote financial development and hence enhance economic growth. The suppliers of capital institutional investors and/or individual savers receive better returns on their investments. Capital seekers around the world are looking beyond their home country's borders for financial resources. This results in increased integration between the Stock markets throughout the world. On the other hand, intensified financial linkages in a world of high capital mobility may also lead to the financial instability in one country being transmitted to neighbouring countries more rapidly. The main drivers of these stock market interdependencies are the progressive deregulation of financial markets, the technological improvements and the development of investment institutions, such as insurance companies, pension funds and so on. Integration is generally opposed to segmentation depending on whether or not barriers to investment exist between countries. Barriers to investment are essential factors that can prevent markets to integrate. Among these factors are exchange rate risks, legal and tax differences, information availability, foreign ownership restrictions, homes bias (Stulz, 1981; Errunza and Losq, 1985). In this way, the financial world is reshaping itself. New market structures and practices are need of time due to financial liberalization and elimination of traditional regulatory barriers and advancement of technology. We are marching towards a globally integrated financial world. Emerging equity markets are attracting the attention of global fund managers because these offer opportunity for

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portfolio diversification. The benefits and costs of international portfolio diversification need to be considered by anyone holding a financial Portfolio (Hasan, Saleem, and Abdullah, 2008). With financial integration, the law of one price to financial assets with the same risk is being tested. If financial markets are not integrated, investors face different expected returns for the same asset (Adjouté, Danthine, 2003), (Baele et al., 2004), (Bekaert, Harvey, 1997). This is because of the fact that source of risk and their price may differ across markets (Kucukcolak, 2008). On the same lines, Adam et al. (2002) argue ―financial markets are integrated when the law of one price holds. In perfectly integrated markets, all assets with identical risk exposure also command identical expected returns (Campbell and Hamao, 1992). In addition, a high degree of integration between national markets minimizes the potential benefit from international diversification (Bessler and Yang, 2003). This paper reviews and summarizes the research on the subject of integration and linkages between stock markets in different parts of the world. There is a fair need to review the literature available on the topic since conflicting signals emerge from the literature about the existence of linkages. While some studies suggest that there exist the linkages between stock markets across the globe, some studies point otherwise. Moreover, a number of studies have focused on the developed nations and the emerging economies, have not received similar amount of attention. The study on hand, tries to reach a conclusion regarding the stock markets of which parts of the globe need to be studied for inter- linkages. The literature used for the purpose of the study has been chosen based on frequency of being quoted. Hence, we use the frequently quoted studies as the inputs for our study. The paper is structured in five parts. Part 1 gives the Introduction to the study, part 2 outlines the objectives of the paper, part 3 brings forth the concept of stock market linkages, part 4 deals with the literature available on Global financial markets, part 5 covers the studies on Asian stock markets, part 6 presents the historical work done on the subject in the form of a comprehensive table, and part 7 concludes the paper.

II OBJECTIVES OF THE STUDY

The study aims at the following objectives

i. to understand the concept of stock market linkages;

ii. to review the literature available on the subject of stock market linkages in order to judge the level of integration of global financial markets; and

iii. to find out the areas of future research in the field of global financial market integration.

III STOCK MARKET LINKAGES

There is no precise definition of capital market integration in the current literature (Adler and Dumas, 1983). However, there is a large body of financial literature which studies the existence of inter-linkages among international capital markets since such linkages have serious implications for

portfolio diversification as well as macroeconomic policies of the countries concerned (Bose, 2005). Stulz (1999) argues that as markets become more integrated, the cost of capital decreases because the removal of investment barriers allows for risk sharing between domestic and foreign agents. All assets with identical risk exposure also command identical expected returns in perfectly integrated markets (Campbell and Hamao, 1992). Barriers to investment like exchange rate risk, legal and tax differences, information availability, foreign ownership restrictions, can prevent markets from integrating. (Stulz, 1981; Errunza and Losq, 1985). The complete elimination of barriers to financial integration allows firms to choose the most efficient sources and greater financial integration allows a better allocation of capital leading to the most productive investment opportunities to become available to investors, and a reallocation of funds to the most productive investment opportunities takes place.

IV LITERATURE ON INTEGRATION OF GLOBAL FINANCIAL MARKETS

The relationships between international stock markets have become increasingly important since Grubel (1968) analyzes the benefits of international diversification. His study was based on empirical data sketching ex post rates of returns from investment in 11 major stock markets. Since then many researchers have studied these relationships within an international context. The interdependency between financial markets has been at the focus of interest since then. The majority of studies in that early period reach the conclusion that the degree of interdependency between markets is quite low, since the prime factors in the development of financial markets are of domestic nature. Even in those years some studies were published that supported the existence of limited interdependency between markets. These include Agmon (1972) who establishes some degree of interdependency between the markets of the US, UK, Germany and Japan during 1961 until 1966; and Ripley (1973) who finds that there is interdependency but only between those countries that are open to foreign capital investments, in contrast with the isolated markets that do not show any interdependence with the other countries (Glezakos, Merika, Kaligosfiris,

2007).

The interrelationships between seven stock markets, vis-à- vis, Germany, France, Italy, the Netherlands, Belgium, the United Kingdom and U.S.A. over the period 19691976 has been investigated by Bertoneche (1979). The results show a trend towards higher segmentation between the various stock exchanges, which means larger opportunities for international diversification. The studies conducted by Eun and Shim (1989), Hassan and Naka (1996), Peiro et al. (1998) and Aggarwal and Park (1994) give significant conclusions with regard to the impact of US‘ markets over the other ones. Eun and Shim (1989) find a substantial multi-lateral interaction among the nine largest stock markets in the world. In particular, they documented that news originating in the U.S. market brings

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the most influential responses from other national markets. Similar study has been undertaken by Hassan and Naka (1996) who investigate the dynamic linkages among the U.S., Japan, U.K. and German stock market indices using daily data for the 1984 to 1991 period. The research finds significant evidence in support of both short-run and long- run relationships among these four stock market indices. The study observes that U.S. stock market led other stock markets in short-run in the pre and post October 1987 crash, but led all other markets in the long-run in all periods examined. One long-run cointegrating equilibrium relationship has been found among the four stock market indices. This implies a limited role of international diversification for investors with long holding periods. However, because the US-Japan-Germany stock market indices, and Japan-UK-Germany indices are not cointegrated with each other, these indices may yield international portfolio diversification in the long-run. As such, the study could not arrive on any conclusive evidence on international stock market efficiency. Using daily return, Peiro et al. (1998) examine the stock markets of New York, Tokyo, and Frankfurt for the years 1990-1993. By applying non-linear least squares, they found that New York is the most influential stock market and Tokyo is the most sensitive to international innovations. Frankfurt stands in the middle. Aggarwal and Park (1994), on the other hand, examine the daily and overnight transmission of equity prices between the U.S. and Japan. The work finds that U.S. equity prices do not lead Japanese equity prices as both U.S. and Japanese opening equity prices reflect overnight price changes in the other market. Kanas (1998) analyzes potential linkages between US stock markets and stock markets in UK, Germany, France, Switzerland, Italy and the Netherlands and found that the US does not share long-run relationships with any of these countries. However, contrasting results can be found in Gerrits and Yuce (1999) which finds evidence that the US stock market is cointegrated with Germany, UK, and the Netherlands. The studies of Koch and Koch (1991), Longin, and Solnik (1995), point towards increase in the degree of international stock market correlation over a period. Koch and Koch (1991) study the evolving of dynamic linkages among the daily rates of return of eight national stock indexes since 1972. The study uses a dynamic simultaneous equations model to describe the contemporaneous and lead/lag relationships across national equity markets over three different years: 1972, 1980, and 1987. Growing market interdependence was revealed within the same geographical region over time. The study concludes that there was a high degree of international market efficiency in the given period. Longin and Solnik (1995) study the correlation of monthly excess returns for seven major countries over the period 1960-90. The study observes that the international covariance and correlation matrices are unstable over time. An explicit modelling of the conditional correlation indicates an increase of the international correlation between markets over the period under study. The study also finds that the correlation rises in periods of high volatility.

Kasa (1992) examines the common stochastic trends in the equity markets of the U.S., Japan, England, Germany, and Canada. He uses Monthly and quarterly data from January 1974 through August 1990 and applies Johansen (1988, 1991) tests for common trends. His study points towards a single common trend, although the stochastic properties and

relative importance of this trend differs somewhat from the trend in stock prices. Richards (1995) points out that a major reason for the findings in Kasa (1992) is an inappropriately long lag length used in the estimation process. Kwan, Sim and Cotsomitis (1995) studies the monthly time series of nine major stock market indices over the period January 1982 to February 1991 to examine for causal linkages. The empirical results indicate that there is adequate evidence to refute the notion of informationally efficient stock markets. Richards (1995) finds evidence for the predictability of relative returns and the existence of a ‗winner-loser‘ effect across 16 national equity markets and concluded that national stock market indices include a common world component and two country-specific components, one permanent and one transitory. The relationship between equity markets in the United States, Canada, and Mexico has been studied by Atteberry and Swanson (1997). The study identifies more causal relationships during periods of economic uncertainty than during periods of relative calm. This implies that the potential benefits associated with diversification across equity markets within the North American system appear to

be diminished during periods of economic uncertainty. Pan,

Liu and Roth (1999) examine linkages between the U.S. and five Asian-Pacific stock markets (Australia, Hong Kong, Japan, Malaysia, and Singapore) during the period from 1988 to 1994. The results of the study indicated that the six stock markets are highly integrated through the second

moments of stock returns but not the first moments. Masih and Masih (2001) investigate the dynamic causal linkages amongst nine major international stock price indexes. Results of this study tend to support the contention offered by several studies in the literature of significant interdependencies between the established OECD and the Asian markets, and the leadership of the US and UK

markets over the short and long run. It was found that these three markets (US, UK and Japan) have consistently contributed over 75% of global stock market capitalization over the major part of the sample under consideration. Choudhry (1997) investigates the empirical investigation of the long-run relationship between stock indices from six Latin American markets and the United States using weekly data from January 1989 to December 1993, by applying the unit root tests, cointegration tests, and error-correction models. Results from the unit root tests provide evidence of

a stochastic trend in all indices. Results from the

cointegration tests indicate the presence of a long-run relationship between the six Latin American indices (with

and without the United States index). Error-correction results indicate significant causality among the stated indices.

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Janakiramanan and Lamba (1998) examine the linkages between the stock markets in the Pacific-Basin region during 198896 using a vector autoregression model. The

markets in the longer-run. Baele and Vennet (2001) investigate the existence of market integration in Europe for the period 1990-2000. Extracting weekly stock returns from

study finds that during 198896 the US market influences

the markets of ten European countries and applying a

all

other Australasian markets, except Indonesia, and none

GARCH process, their results suggested that the main driver

of

these markets exert a significant influence on the US

of European market integration is the reduction of currency

market. An analysis excluding the US market revealed persistent linkages between these markets that can be traced

volatility within European countries. Yonghyup (2003) examines the recent trend of sector-level returns for four

the indirect influences of the US market. The study

indicates that the markets that are geographically and economically close and/or with large numbers of cross- border listings exert significant influence over each other, with markets closing earlier in the day exerting greater influence over markets closing later in the day. Roca (1999) investigates the price linkages between the equity market of Australia and that of the US, UK, Japan, Hong Kong, Singapore, Taiwan, and Korea using weekly MSCI stock market data covering the period 1974-1995.

to

European countries, France, Germany, Italy, and the UK, using "return on assets" of a panel of listed firms of these countries for the period 198895. Initial findings suggested that sector returns have converged across countries over time. However, when integration is tested within a capital- asset pricing model framework, the country effect remains strong. The overall result support the view that European capital market integration is under way, but is far from complete. Aggarwal, Lucey and Muckley (2003) examine the integration of European equity markets over the 1985-

The study conducted Cointegration test using the Johansen

2002

period using a relatively new cointegrating technique

(Journal of Economic Dynamics and Control, 12, 1988) and Johansen and Juselius (Oxford Bulletin of Economics and Statistics, 52, 1990) procedure and Granger-causality tests based on error-correction models and standard vector autoregression models. He found no correlation between Australia and the other markets. However, the Granger- causality and forecast variance decomposition analyses reveal that Australia is significantly linked with the US and the UK. The impulse response analyses further show that Australia responds to shocks from the US and the UK immediately during the first week and this response is completed with a period of four weeks. The dynamic interdependence of the major stock markets in Latin America (Argentina, Brazil, Chile, Colombia, Mexico, and Venezuela) has been studied by Chen, Firth and Rui (2002) using data from 1995 to 2000. The study finds that there is one cointegrating vector, which appears to explain the dependencies in prices. The results are robust to sensitivity tests based on translating indexes to US dollars (i.e., a common currency for all the markets) and to partitioning the sample into periods before and after the Asian and Russian financial crises of 1997 and 1998, respectively. Results of the study suggest that the potential

that assesses how the level of integration in equity price levels changes over time. They supplement this technique by two other dynamic techniques that also measure the extent of time-varying integration from complementary perspectives. The three methods agree that there has been an increased degree of integration among European equity markets especially during the 1997-98 periods. The evidence presented in this study also indicated that Frankfurt is the dominant market for equities in Europe. Glezakos, Merika and Kaligosfiris (2007) examine the short and long run relationships between major world financial markets with particular attention to the Greek stock exchange. The study covers the period of 2000-2006 using monthly data. The study finds out that the US global influence is noticeable on all major world financial markets. It also responds significantly to primarily domestic shocks. Furthermore, our findings suggest that the Athens stock market is strongly affected by the US and the German markets but the influence as the estimation of the impulse response function suggested is completed within a day. This paper also presents a summary of research done on Stock market integration across the globe. However, this summary is mostly focused on the Developed world. Out of the 22

for diversifying risk by investing in different Latin American markets is limited.

papers quoted in the summary, as many as 18 deal with the Developed world. These papers are ranging from the year

A number of studies have investigated the stock market

linkages in Europe. These include Bessler and Yang (2003); Baele and Vennet (2001); Yonghyup (2003); and Aggarwal, Lucey and Muckley (2003). Bessler and Yang (2003) study the dynamic structure of nine major stock markets using an error correction model and directed acyclic graphs (DAG). The results did show that the Japanese market was among the most highly exogenous and the Canadian and French markets among the least exogenous in the nine markets under study. The US market was found to be highly influenced by its own historical innovations, but it was also influenced by market innovations from the UK, Switzerland, Hong Kong, France, and Germany. The study pointed out that the US market is the only market that had a consistently strong impact on price movements in other major stock

1989 to 2001.

Kucukcolak (2008) measures the integration level of the Turkish equity market with the EU market indices of UK, Germany, France and Greece. The study uses daily data for the period of 2001-2005. The study concludes that in the long run, the Turkish stock market is not co-integrated with its mature counterparts in the EU, in contrast to the Greek market, which is co-integrated.

V LITERATURE ON ASIAN MARKETS

The stock market crash of 1987 holds special relevance in the study of integration of Asian stock markets with those of the Developed world. The crisis originated with the US when within a duration of five trading days in October 1987,

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the prices on New York Stock Exchange fell by one-third. This movement was triggered by high trade deficits and proposed takeovers related legislation. The crisis, after originating from the US spread to all major developed markets except Japan. It is worth mentioning here that the stock markets of most of the Nations had peaked up between April and September 1987. The study of Arshanapalli, Doukas, and Lang (1995) supports this argument. They investigate the presence of a common stochastic trend between the U.S. and the Asian stock market movements during the post-October 1987 period. The evidence suggests that the ―cointegrating structure‖ that ties these stock markets together has substantially increased since October 1987. The influence of the U.S. stock market innovations was also found to be greater during the post-October period. The results also indicate that the Asian equity markets are less integrated with Japan's equity market than they are with the U.S. market. No clear signals seem to emerge from the literature on integration of Asian Stock markets. This observation is driven from the researchers conducted by Ghosh, Saidi and Johnson (1999); Bailey and Stulz (1990); Phylaktis and Ravazzolo (2002), Click and Plummer (2003), Sharma and Wongbangpo (2002), Choudhry and Lin (2004). Ghosh, Saidi and Johnson (1999) examined the debacle of the Asian-Pacific stock markets by utilizing the theory of cointegration to investigate which developing markets are moved by the markets of Japan and the United States. The empirical evidence suggested that some countries are dominated by the US, some are dominated by Japan, and the remaining countries are dominated by neither during the time period investigated. Similarly, Bailey and Stulz (1990) investigate the US, Malaysia, Korea, Singapore Hong Kong, Japan, Philippines, Taiwan and Thailand market indices from January 1977 to December 1985 using simple correlation analysis to detect interrelations among the markets. The study concluded that the degree of correlation between US and Asian equity returns depended upon the period specification, whether daily, weekly or monthly. This conclusion is supported by the finding that with daily returns, only correlations between the US & Hong Kong, and Japan & Taiwan were significant, where as for monthly returns, correlations between all Asian markets were significant with the exception of the Philippines and Thailand. Similar results have been shown in the study of Phylaktis and Ravazzolo (2002), who examine real and financial links simultaneously at the regional and global level for a group of Pacific-Basin countries by analyzing the covariance of excess returns on national stock markets over the period 19801998. The study concludes that financial integration is accompanied by economic integration. The results suggest that economic integration provides a channel for financial integration, which explains, at least partly, the high degree of financial integration. Click and Plummer (2003) examine the stock market integration of Indonesia, Malaysia, the Philippines, Singapore, and Thailand for the period of July 1998 to December 2002, using daily and weekly data. The research concludes that the markets under study are cointegrated whether analyzed using daily and

weekly data. These results are to some extent similar to those produced by Sharma and Wongbangpo (2002), who examine monthly data from January 1986 to December 1996 for the stock markets of Indonesia, Malaysia, Singapore, the Philippines, and Thailand. Sharma and Wongbangpo (2002) find a long-run cointegrating relationship among the stock markets of Indonesia, Malaysia, Singapore, and Thailand, which is not shared by the Philippine stock market. Choudhry and Lin (2004) investigate the change(s) in the long-run relationship(s) between the stock prices of eight Far East countries around the Asian financial crisis of 199798. Further tests were c