Structural Breaks in the Interconnected Relation between Decision‐Making and Applied Strategic Agility on Public Insurance and Bank Projects

• Date: 01 July 2016
• Author: Walter Amedzro St‐Hilaire
• Published date: 01 July 2016
• DOI: http://doi.org/10.1002/jsc.2066

RESEARCH ARTICLE

Strat. Change 25: 329–341 (2016)

Published online in Wiley Online Library

(wileyonlinelibrary.com) DOI: 10.1002/jsc.2066

Copyright © 2016 John Wiley & Sons, Ltd.

Strategic Change: Briengs in Entrepreneurial Finance

Strategic Change

DOI: 10.1002/jsc.2066

Structural Breaks in the Interconnected Relation

between Decision-Making and Applied Strategic

Agility on Public Insurance and Bank Projects1

Walter Amedzro St-Hilaire

ExpertActions Group & University of Ottawa, Canada

The public insurance and bank markets offer lower diversication possibilities for

inter-sector diversication.

e objective of this study is to investigate the integration of stock market,

foreign exchange market, and money market in the context of the public sector.

eintra-country integration of these insurance and bank markets in the short

and long run is estimated using monthly data. To accomplish the objectives, we

use cointegration analysis and the vector error correction method (VECM).

Empirical results from both the techniques of cointegration – i.e., Engle–Granger

and Johansen–Juselius – demonstrate that the public insurance and bank markets

are cointegrated in the long run. VECM results show that in the short run, the

exchange rate and interest rate do not aect the stock prices, and similarly

the stock prices and interest rate do not aect the exchange rate. However, the

exchange rate signicantly aects the interest rate in the short run. e ndings

based on impulse response functions and variance decomposition demonstrate

that most of the variations in each market variable can be explained by own lag.

e public insurance and bank markets oer fewer opportunities for intra-country

diversication of nancial portfolios.

One of the most important decisions for investors is portfolio allocation. It is

important in this decision to know how dierent insurance and bank markets are

integrated. If, for instance, the stock and money markets are not highly integrated,

then it is possible to lower the portfolio risk by diversication. One of the key

interests of an investor is to minimize the risks of an investment portfolio and

maximize the expected returns. Generally, portfolio diversication is attained by

employing two major strategies: investing in various categories of assets thought

to have no or negative correlations, or investing in identical categories of assets in

various markets through global diversication. Admittance to capital markets has

raised the prospects of portfolio diversication for investors, and also provides

1 JEL classication codes: F29, G29, G39, L19, M16, M19, M21, M29, M51.

Public insurance and bank

markets are cointegrated in the

long run; the exchange rate and

interest rate do not affect the

stock prices, and similarly the

stock prices and interest rate do

not affect the exchange rate.

However, the exchange rate

signicantly affects the interest

rate in the short run.

Most of the variations in each

analyzed market variable can be

explained by own lag.