a principal components analysis of international financial integration under fixed and floating exchange rate regimes this paper presents an application of factor analytic techniques employing principal components analysis to determine to what extent international financial integration has been enhanced as a result of the move to a floating exchange rate regime by the major industrialized countries in the early 1970s while several alternative though related definitions exist financial integration is viewed here as the extent to which the levels or changes in interest rates in different financial centers move in harmony the results suggest that there has not been a marked increase in scope for countries to pursue independent interest rate policies since 1973 though germany would seem to be an exception to this general observation

using operating cash flow data to predict financial distress some extensions recently financial statement users and regulators of publicly reported financial accounting data have argued in favor of the disclosure of detailed information on firms current operating cash flows harris et al 1980 fasb 1981 smith 1982 and thomas 1982 the fasb suggests that such disclosures will allow users to assess better the amount timing and uncertainty of future cash flows it states that the greater the amount of future net cash inflows from operations the greater the ability of the enterprise to withstand adverse changes in operating conditions 1981 p 11 the presumption that historical operating cash flows enable better assessments of future cash flows however is based on intuition rather than on empirical evidence griffin 1982 our study was conducted to assess whether operating cash flow data and related measures lead to more accurate predictions of bankrupt and

which market integration measure abstract this paper compares the dynamics of the financial integration process as described by different empirical approaches to this end a wide range of measures accounting for several dimensions of integration is employed in addition we evaluate the performance of each measure by relying on an established international finance result i e increasing financial integration leads to declining international portfolio diversification benefits using monthly equity market data for three different country groups i e developed markets emerging markets developed plus emerging markets and a dynamic indicator of international portfolio diversification benefits we find that i all measures give rise to a very similar long run integration pattern ii the standard correlation explains variations in diversification benefits as well or better than more sophisticated measures these findings are robust to a battery of robustness checks

the short and long run benefits of financial integration there is an extensive economics and finance literature that addresses the potential benefits of financial integration although theory predicts significant gains due to portfolio diversification decreased cost of equity capital and reduced financing constraints empirical models have so far yielded estimates of negligible welfare gains models used to estimate the welfare effects of financial integration do not explain both prices and quantities in order to address this point we propose a general equilibrium model that is able to simultaneously explain i the volatility of exchange rate and stochastic discount factors and both ii the volatility of net exports and iii the amount of cross country correlation and persistence of consumption growth rates in our economy agents have risk sensitive preferences in the sense of hansen and sargent 1995 this implies that investors have a preference for the timing of the resolution of uncertainty we conduct our analysis for the case in which consumption is a cobb douglas aggregation of domestic and foreign goods both of which are tradable furthermore we let the dynamics of the growth rate of the endowments of the two countries be characterized by the presence of two slowly moving predictive factors these components denoted as long run risks alter the intertemporal distribution of income risk by producing slow swings in the the short and long run benefits of financial integration

evolution of international stock and bond market integration influence of the european monetary union abstract this paper examines the dynamic relationship between daily stock and government bond returns of selected countries over the past decade to infer the state and progress of inter financial market integration we proceed to empirically investigate the influence of the european monetary union emu on time variations in inter stock bond market integration segmentation dynamics using a two step procedure first we document the downward trends in time varying conditional correlations between stock and bond market returns in european countries japan and the us second we investigate the causality and determinants of this interdependent relationship in particular whether the various macroeconomic convergence criteria associated with the emu have played a significant role we find that real economic integration and the reduction in currency risk have generally had the desired effect on financial integration but monetary policy integration may have created uncertain investor sentiments on the economic future of the emu thereby stimulating a flight to quality phenomenon

global and country specific movements in real effective exchange rates implications for external competitiveness abstract using the bayesian factor model we decompose real effective exchange rates which are considered a measure of external competitiveness into global and country specific factors among several findings we report a particular global trend in real exchange rates but a substantial proportion of their variation is found to be country specific in line with this finding we find that structural shifts when they do exist are contained in country specific factors furthermore consistent with economic theory this global factor is closely related to a trend in the global interest rate while country specific factors are closely related to idiosyncratic movements in the countries own interest rates such a decomposition results in better understanding of the exchange rate interest rate relationship and therefore our results can be interpreted as evidence that external competitiveness is heterogeneous among countries and that economic policies can influence countries competitiveness

financial integration and consumption smoothing we test if financial integration improves household consumption smoothing using microeconomic data we find that the process of financial market integration and liberalisation brought about by the introduction of the euro has not affected the sensitivity of consumption with respect to income shocks in italy this article also makes a significant contribution from a methodological point of view because our procedure does not require that consumption and income are available in the same panel data set it can therefore be applied in all countries in which repeated cross sectional consumption data can be combined with panel data on income

state renewable energy tax incentives monetary values correlations policy questions abstract most states have enacted tax incentive programmes to accelerate renewable energy use independent of federal efforts the monetary value of each state s incentives to purchasers of solar water wind energy or photovoltaic cell systems is calculated to compare state programmes while the value of the incentives varies dramatically the amounts appear unrelated to state energy and non energy characteristics the variations in state commitments and their independence from state energy conditions raise several policy questions that need to be addressed as the states assume the major role in renewable energy commercialization

measuring financial market integration over the long run is there a u shape abstract using long time series for sovereign bond markets of fifteen industrialized economies from 1875 to 2009 i find that financial market integration by the end of the 20th century was higher than in earlier periods and exhibited a j shaped trend with a trough in the 1920s the main reason for the higher financial integration seen today is the recent extensive globalization around the turn of the 20th century countries frequently drifted apart conversely in recent years the bond markets of most countries have moved together both policy variables and the global market environment play a role in explaining the time variation in integration while unexplained changes in the overall level of country risk are also empirically important my methodology based on principal components analysis is immune to outliers and accounts for global and country specific shocks and hence can capture trends in financial integration more accurately than standard techniques such as simple correlations

a century of global equity market correlations in this paper we use a unique long run dataset of regulatory constraints on capital account openness to explain stock market correlations since stock returns themselves are highly volatile any examination of what drives correlations needs to focus on long runs of data this is particularly true since some of the short term changes in co movements appear to reverse themselves delroy hunter 2005 we argue that changes in the co movement of indices have not been random rather they are mainly driven by greater freedom to move funds from one country to another in related work geert bekaert and campbell harvey 2000 show that equity correlations increase after liberalization of capital markets using a number of case studies from emerging countries we examine this pattern systematically for the last century and find it to be most pronounced in the recent past we compare the importance of capital account openness with one main alternative explanation the growing synchronization of economic fundamentals we conclude that greater openness has been the single most important cause of growing correlations during the last quarter of a century though increasingly correlated economic fundamentals also matter in the conclusion we offer some thoughts on why the effects of greater openness appear to be so much stronger today than they were during the last era of globalization before 1914 this abstract was borrowed from another version of this item

emu and european government bond market integration in this study we adopt the capm based model of bekaert and harvey 1995 to compare the differences in the relative importance of two sources of systemic risk world and eurozone on government bond returns in two groups of countries in eu 15 results show that euro markets are less vulnerable to the influence of world risk factors and more vulnerable to emu risk factors however they are only partially integrated for their part the markets of the countries that decided to stay out of the monetary union present a higher vulnerability to external risk factors

banking market integration in the sadc countries evidence from interest rate analyses this study investigates the state development and drivers of banking market integration in the member countries of the southern african development community sadc a principal component analysis pca of national retail interest rates indicates increasing integration in loan and deposit markets these integration processes are not developing uniformly and we can identify a convergence club when investigating the interest rate pass through from central bank onto retail rates for this convergence club we find both genuine and monetary integration driven processes though the latter dominate we thus conclude that a selective expansion of the common monetary area cma is possible

alternative energy development in the usa the effectiveness of state government incentives abstract this paper presents a rationale for government incentives to alternative energy development in the usa the effectiveness of the major incentives now in use by state governments is tested empirically by using active solar residential hot water installations data for the usa the results suggest that state income tax credits and increases in conventional fuel ie natural gas prices through taxation or other means appear to be having the expected effect of increasing the number of solar collectors installed from these data property tax exemptions do not appear to be effective in promoting alternative energy development the data on sales tax exemptions and grant or loan programmes are inconclusive untested incentives including direct regulation and saved energy and non targeted incentives provide opportunities for further research

long term global market correlations the correlation structure of the world equity markets varied considerably over the past 150 years and was high during periods of economic integration we decompose diversification benefits into two parts one component due to variation in the average correlation across markets and a another component due to the variation in the investment opportunity set from this we infer that periods of globalization have both benefits and drawbacks for international investors globalization expands the opportunity set but as a result the benefits from diversification rely increasingly on investment in emerging markets

optimal subsidies to new energy sources abstract this paper broadens previous discussion on the conditions for subsidizing new energy sources several arguments for and against subsidizing new energy sources such as solar energy and synthetic fuels are reviewed and critiqued emphasis is given to vintage subsidies to conventional energy sources net energy analysis and a variety of production externalities a theorem for determining optimal subsidies to new energy sources is developed based on a general theorem proposed by baumol and bradford 2 finally two equity issues are also considered

the rise of sector effects in major equity markets historically country effects have been dominant in explaining variations in global stock returns even in the developed markets and investors have segmented their allocations accordingly we set out to investigate whether this situation still prevails we found a significant shift in the relative importance of national and economic influences in the stock returns of the world s largest equity markets in these markets the impact of industrial sector effects is now roughly equal to that of country effects in addition to supporting the notion of increasing global capital market integration these findings suggest that country based approaches to global investment management may be losing their effectiveness

time varying inter market linkage of international stock markets as a response to the growing concern on the interconnection of international stock markets this study uses the pena box model to capture time varying relationship of the returns of 13 stock indices during 1993 2002 the results indicate a dynamic relationship of world major stock markets over time which provide new but supplemental evidence on the conclusion derived from the conventional confirmatory factor analyses in literature

the evolution of collective strategy frames in high and low velocity industries we argue that the collective assumptions of firms drive their actions and practices and create the conditions of industry velocity in our view cognitive construction by firms is the primary driver of industry velocity this is in contrast to the contingency views common in the literature which hold that industry velocity plays a role by constraining and shaping firm strategies specifically we suggest that firms develop unique assumptions social networks and feedback mechanisms that these mechanisms perpetuate patterns of changes in collective beliefs and aggregate actions and that these patterns in turn shape high and low velocity conditions we examine these assertions by tracing the collective beliefs of three aircraft low velocity and semiconductor high velocity firms over a 20 year period 1977 1997 our results suggest that the cognitive construction view of industry velocity is reasonable

solar subsidies and economic efficiency abstract in this paper the case for subsidies for solar energy to counter inefficient pricing practices of electric utilities hidden subsidies to non solar fuels and tax law biases are examined the conclusion reached for two of three regions in the usa in the case of solar energy replacing electricity for hot water heating is that far from offsetting biases against solar energy current subsidies reinforce pre existing biases in favour of the use of solar energy systems

investment cash flow sensitivities are useful a comment on kaplan and zingales arecent paper in this journal by kaplan and zingales reexamines a subset of erms from work of fazzari hubbard and petersen and criticizes the usefulness of investment cash eow sensitivities for detecting enancing constraints we show that the kaplan and zingales theoretical model fails to capture the approach employed in the literature and thus does not provide an effective critique moreover we describe why their empirical classiecation system is eawed in identifying both whether erms are constrained and the relative degree of constraints across erm groups we conclude that their results do not support their conclusions about the usefulness of investment cash eow sensitivities in a recent paper in this journal kaplan and zingales 1997 hereinafter kz argue that investment cash eow sensitivities do not provide useful evidence about the presence of enancing constraints because kz use a subset of the same erms and the same regressions as fazzari hubbard and petersen 1988 hereinafter fhp and claim page 176 that fhp can legitimately be considered the parent of all papers in this literature it is appropriate that we respond based on a simple theoretical model kz reach the provocative conclusion page 211 that the investment cash eow sensitivity criterion as a measure of enancial constraints is not well grounded in theory in section i we show that the kz model does not capture the theoretical approach employed in fhp and many subsequent studies most of the kz paper attempts to show that empirical investment cash eow sensitivities do not increase monotonically with the degree of enancing constraints within the 49 low dividend erms from the fhp sample in section ii we explain why the kz classiecation of the degree of constraints is eawed in identifying both whether or not erms are constrained absolute constraints as well as the relative degree of constraints across erms as a result we argue in section iii that there is no expected ex ante pattern for the

potential gains from international portfolio diversification and inter temporal stability and seasonality in international stock market relationships abstract in this paper we find empirical evidence that diversification across countries results in greater risk reduction than diversification across industries our inter temporal stability tests indicate that the longer the time period considered the better proxies ex post patterns of co movement can be for the ex ante co movements of international stock markets our seasonality tests show that international stock market co movements are stable in the september may period but relatively unstable in the may september period

corporate governance and default prediction a reality test default prediction has commanded the attention of researchers for at least 50 years this paper addresses several testable hypotheses regarding the relations between corporate governance and defaul

the probability of bankruptcy a comparison of empirical predictions and theoretical models abstract the last decade has witnessed the development of many empirical models to predict corporate bankruptcy and of several bankruptcy theories this paper reviews and integrates these two strands of research and finds a substantial amount of overlap however the overlap is not perfect the paper presents a new theory of bankruptcy that appears to fit the data better the paper also suggests directions for future empirical and theoretical research