international diversification works eventually critics of international diversification observe that it does not protect investors against short term market crashes because markets become more correlated during downturns although true this observation misses the big picture over longer horizons underlying economic growth matters more than short lived panics with respect to returns and international diversification does an excellent job of protecting investors

a country specific point of view on international diversification abstract this paper adds a country specific point of view on diversification among financial markets previous results indicate that emerging markets may generally exhibit higher diversification effects in comparison to developed markets due to lower market linkages however the question remains which markets in particular may be more or less attractive among emerging and developed markets as well as in a world market setting to the best of our knowledge this is the first empirical study which analyzes this question beyond continental levels only we analyze diversification by means of optimal portfolio allocations and in terms of tail risk reductions we also include investors tendency to overweight regional investments home bias our results show that malaysia switzerland jordan chile or singapore are markets with high diversification potential on the contrary argentina brazil and south korea exhibit high individual risk levels in combination with high market linkages

the impact of progresa on food consumption abstract in this article we used data from the mexican poverty alleviation program called progresa programa de educacion salud y alimentacion to examine whether eligibility for a cash transfer provided by the program conditional on children s regular school attendance and regular visits to health centers is also associated with increased consumption of food we used a longitudinal sample of approximately 24 000 households from 506 communities a distinguishing characteristic of this sample was that some of the communities were randomly selected for participation in progresa while the rest were introduced into the program at later phases exploiting this feature in our analysis we found that eligible households in the villages covered by progresa increased caloric acquisition compared with eligible households not receiving these benefits by november 1999 median beneficiary households in treatment localities obtained 6 4 more calories than did comparable households in control localities perhaps eve

a reinterpretation of the optimal demand for risky assets in fund separation theorems in a continuous time portfolio selection model with n risky assets and k state variables driving their risk and return parameters we derive simple expressions for the allocation to each asset in the k 1 risky funds of the k 2 fund separation theorem we show that the allocation to any given risky asset in each fund can be written in terms of the parameters of a regression of the excess returns of this asset on those of the n 1 remaining assets we also use these parameters to provide quantitative measures of the increase in sharpe ratio of the speculative demand or in the maximum correlation of each hedging demand with respect to the corresponding risk factor associated with the introduction of a new asset in the investment universe finally we show that in a multiperiod setting an asset is spanned by others if and only if it improves neither the maximum sharpe ratio of the speculative demand nor the maximum correlations of the hedging demands with the risk factors this paper was accepted

international asset pricing and portfolio diversification with time varying risk we test the conditional capital asset pricing model capm for the world s eight largest equity markets using a parsimonious generalized autoregressive conditional heteroskedasticity garch parameterization our methodology can be applied simultaneously to many assets and at the same time accommodate general dynamics of the conditional moments the evidence supports most of the pricing restrictions of the model but some of the variation in risk adjusted excess returns remains predictable during periods of high interest rates our estimates indicate that although severe market declines are contagious the expected gains from international diversification for a u s investor average 2 11 percent per year and have not significantly declined over the last two decades

global pricing of equity global equity management has historically been structured around country asset allocation this approach was supported by the observations that the country factor is the major source of influence on stock price behavior and that the correlation between equity and currency is close to zero and unstable if a corporation is regarded as a portfolio of international activities however its stock price should be influenced by international factors in relation to the geographical breakdown of its activities rather than where its headquarters is located or its stock is traded we examined a large cross section of security prices and found that regional factors and currency factors have a strong influence on asset returns beyond that of domestic factors moreover the sensitivity of individual company returns to nondomestic factors is closely related to the extent of their international activities as proxied by the relative importance of foreign sales to total sales we review the implications of these findings

global versus local asset pricing a new test of market integration should capital cost calculations be based on a global or local market benchmark the december 2000 redefinition of the morgan stanley capital international msci global equity index was a natural experiment addressing this question it is argued that this event triggered a portfolio shift by index funds large enough to affect the residual asset supplies constituting the global and local market benchmarks of all actively managed capital changes in the market benchmarks imply distinct and predictable changes to global and local stock betas exploring whether global or local beta changes best explain the cross section of event returns reveals that stocks in developed markets are priced globally and not locally jel g11 g14 g15

altruism and risk sharing in networks we provide the first analysis of the risk sharing implications of altruism networks agents are embedded in a fixed network and care about each other we study whether altruistic transfers help smooth consumption and how this depends on the shape of the network we identify two benchmarks where altruism networks generate efficient insurance for any shock when the network of perfect altruism is strongly connected and for any small shock when the network of transfers is weakly connected we show that the extent of informal insurance depends on the average path length of the altruism network and that small shocks are partially insured by endogenous risk sharing communities we uncover complex structural effects under iid incomes central agents tend to be better insured the consumption correlation between two agents is positive and tends to decrease with network distance and a new link can decrease or increase the consumption variance of indirect neighbors overall we show that altruism in networks has a first order impact on risk and generates specific patterns of consumption smoothing

crossing the lines the conditional relation between exchange rate exposure and stock returns in emerging and developed markets this paper examines the importance of exchange rate exposure in the return generating process for a large sample of non financial firms from 37 countries we argue that the effect of exchange rate exposure on stock returns is conditional and show evidence of a significant return impact to firm level currency exposures when conditioning on the exchange rate change we further show that the realized return to exposure is directly related to the size and sign of the exchange rate change suggesting fluctuations in exchange rates as a source of time variation in currency return premia for the entire sample the return impact ranges from 1 2 to 3 3 per unit of currency exposure and it is larger for firms in emerging markets compared to developed markets overall the results indicate that foreign exchange rate exposure estimates are economically meaningful despite the fact that individual time series results are noisy and many exposures are not statistically significant and that exchange rate exposure plays an important role in generating cross sectional return variation moreover we show that the relation between exchange rate exposure and stock returns is more consistent with a cash flow effect than a discount rate effect

theoretical relations between risk premiums and conditional variances many statistical models of time varying risk premiums including the autoregressive conditional heteroscedasticity arch in mean attempt to exploit a relation between risk premiums and conditional variances or covariances of asset returns we examine this relation in numerical versions of a dynamic asset pricing theory and show that it can be increasing decreasing flat or nonmonotonic its shape depends on both the preferences of the representative agent and the stochastic structure of the economy without additional structure the theory does not provide either a general foundation for arch in mean specifications or a simple interpretation of their parameters

risk sharing networks and insurance against illness most risk sharing tests on developing country data are conducted at the level of the village generally the full risk sharing hypothesis is rejected this paper uses detailed data on all insurance networks within a village in tanzania networks are not clustered but largely overlapping we test whether full risk sharing occurs within these networks while village level full insurance cannot be rejected for food consumption we find evidence consistent with at least partial insurance of non food consumption via networks

efficient estimation of conditional asset pricing models a semiparametric efficient estimation procedure is developed for the parameters of multivariate generalized autoregressive conditional heteroscedasticity in mean models when the disturbances have a conditional distribution assumed to be elliptically symmetric but otherwise unrestricted under high level assumptions the resulting estimator achieves the asymptotic semiparametric efficiency bound the elliptical symmetry assumption allows us to avert the curse of dimensionality problem that would otherwise arise in estimating the unknown error distribution this framework is suitable for the estimation and testing of conditional asset pricing models such as the conditional capital asset pricing model we apply our procedure in an empirical study of stock prices with monte carlo simulation results also reported

a new approach to measuring financial contagion this article proposes a new approach to evaluate contagion in financial markets our measure of contagion captures the coincidence of extreme return shocks across countries within a region and across regions we characterize the extent of contagion its economic significance and its determinants using a multinomial logistic regression model applying our approach to daily returns of emerging markets during the 1990s we find that contagion is predictable and depends on regional interest rates exchange rate changes and conditional stock return volatility evidence that contagion is stronger for extreme negative returns than for extreme positive returns is mixed

informal insurance arrangements with limited commitment theory and evidence from village economies recent work on consumption allocations in village economies finds that idiosyncratic variation in consumption is systematically related to idiosyncratic variation in income thus rejecting the hypothesis of full risk pooling we attempt to explain these observations by adding limited commitment as an impediment to risk pooling we provide a general dynamic model and completely characterise efficient informal insurance arrangements constrained by limited commitment and test the model using data from three indian villages we find that the model can fully explain the dynamic response of consumption to income but that it fails to explain the distribution of consumption across households

correlations in price changes and volatility across international stock markets the short run interdependence of prices and price volatility across three major international stock markets is studied daily opening and closing prices of major stock indexes for the tokyo london and new york stock markets are examined the analysis utilizes the autoregressive conditionally heteroskedastic arch family of statistical models to explore these pricing relationships evidence of price volatility spillovers from new york to tokyo london to tokyo and new york to london is observed but no price volatility spillover effects in other directions are found for the pre october 1987 period article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the crash risks of style investing can they be internationally diversified the crash risks of momentum tend to be higher than those of size and value international diversification lowers the crash risks of size and value but not momentum the authors examined the conditional correlations and return co exceedances of style portfolios across countries and found that this difference in the effect of diversification is due to the left right tails of momentum size and value portfolios being more correlated than the right left tails across countries

can cross country portfolio rebalancing give rise to forward bias in fx markets abstract this paper develops a model of exchange rate dynamics that takes into account positions in foreign and domestic equities in addition to standard short term riskless securities the modeling of cross country stock holdings is motivated by evidence that a large and ever increasing proportion of currency flows has been directed toward national stock markets to the extent that there is not perfect risk sharing investors tend to hold currency risk and international equity risk as a bundle this paper examines the impact of such cross country covariance risk on the relationship between exchange rate returns and interest rate differentials in particular we show that the sign and magnitude of the coefficient on the lagged interest differential is governed by a type of time varying beta risk that reflects the conditional covariance between exchange rate returns and the return differential between foreign and domestic equities as this cross country beta is predominantly negative our results have direct implications on the empirical failure of the uncovered interest parity uip hypothesis suggesting that the traditional uip regression equation is confounded in a non standard nonlinear way by the presence of cross country equity flows simulation experiments show that accounting for such portfolio rebalancing activities may in part help to explain the anomalous slope coefficient associated with the forward premium

the time variation of risk and return in the foreign exchange and stock markets this paper attempts to determine whether the fluctuations of conditional first and second moments which are observed for many assets are consistent with the sharpelintner mossin capital asset pricing model we test the mean variance model under several different assumptions about the time variation of conditional second moments of returns using weekly data from july 1974 to december 1986 that include returns on a portfolio composed of dollar deutsche mark sterling and swiss franc assets together with the u s stock market the results indicate that estimated conditional variances cannot explain the observed time variation of risk premia rates of return on international financial assets are characterized by statistical properties that are quite common to all financial markets they are highly volatile and largely unpredictable these properties make it very difficult to extract statistically reliable estimates of systematic exchange rate and assetprice movements and are at the root of the generally poor empirical performance of international asset pricing models nevertheless two important results have been uncovered by empirical researchers and can be considered a fair characterization of the data a expected returns on foreign assets vary over time cumby and obstfeld 1981 and the numerous articles that followed recently surveyed by frankel and meese 1987 b the volatility of returns of foreign assets also changes over time cumby and obstfeld 1984 hodrick and srivastava 1984 and hsieh 1988 among others as giovannini and jorion 1987 suggest the

dynamic return volatility dependence and risk measure of covar in the oil market a time varying mixed copula model abstract this study investigates the risk level in the oil market measured by value at risk var and conditional var covar as well as the dynamic and asymmetric dependence between wti returns and crude oil volatility index ovx by constructing six time varying mixed copula models results show that mixed copula between t copula and the 270 degree rotated clayton copula is the optimal fitting copula to measure dynamic dependence the estimated time varying kendall coefficients indicate that wti returns and ovx present negative dependence most of the time there exists a structural change point of dependence between wti returns and ovx changes on april 17 2009 while the dependence characteristics within the subsamples are similar to that in the whole sample indicating the rationality of our time varying mixed copula models finally the tests show significant risk spillover from ovx to wti returns and also asymmetric effects for covars in response to different upside and downside extreme ovx movements

portfolio selection an alternative approach this paper provides a solution to the portfolio diversification problem based on finding optimal weights that will result in maximizing the risk adjusted return of the underlying portfolio subject to the budget constraint contrary to the standard approach that aims at finding the required weights based on minimizing the variance of the portfolio subject to the budget constraint a mathematical proof is given for the suggested solution an application is provided to the portfolio diversification opportunity between all the share market indexes of the two largest economies in the world the results show that the portfolio created by our suggested approach leads to almost one percent increase in the risk adjusted return compared to the portfolio created by the standard method

can bank be a source of contagion during the 1997 asian crisis abstract this paper tests whether bank can be a source of contagion during the 1997 asian crisis using asset return data from a crisis country thailand in particular i examine whether thai banking sector can produce contagion effects in both conditional means and volatilities of its foreign exchange and stock markets during the crisis after controlling economic fundamentals the test results show that contagion in mean effects appear to be multidirectional since return shocks emanating from any one of the three markets can sweep across all markets but contagion in volatility effects are mainly driven by the negative return shocks originating in the banking sector overall the empirical evidence indicates that the past return shocks emanating from banking sector have significant impact not only on the volatilities of foreign exchange and aggregate stock markets but also on their prices suggesting that bank can be a major source of contagion during the crisis

an evaluation of the equilibrium value of the euro and its predecessors based on economic fundamentals abstractthis study presents constructed equilibrium exchange rates eers of the euro and its predecessors the european unit of account and the european currency unit as well as the euro s member states using a relative version of purchasing power parity ppp equilibrium the revealed patterns of over and undervaluation demonstrate how well suited the northern member states in contrast to the southern states were for the monetary union moreover a relative persistent overvaluation for greece and portugal suggests that their ambition to join the euro reduced their competitiveness the constructed eers of the euro suggest the european commission was able to set the initial value of the euro with a high degree of accuracy furthermore the eers indicate a successive strengthening of the fundamental value of the euro versus the u s dollar from 1999 to 2015 the analysis shows a close correlation between the deviations from equilibrium and the events of greece s sovereign debt crisis in addition the p

currency risk premia and uncovered interest parity in the international capm abstract zero investment uncovered interest parity uip portfolio positions provide perfect factor mimicking portfolios for currency risk in the international capm context their returns are the currency risk premia since the uip positions on average provide low returns the currency risk premia must be low so that currency risk appears not to be priced in an unconditional model however previous research has shown that uip returns are predictable and may be quite substantial conditionally we use this observation to generate a specific conditional version of the international capm a gmm approach shows that the conditional model performs well while the unconditional international capm is marginally rejected the paper thus argues that previous rejections of the international capm stem from the fact that currency risk premia are by nature low over extended periods of time and do not provide evidence against the international capm

assessing the performance of alternative investments using non parametric efficiency measurement approaches is it convincing abstract dea based performance assessment in the alternative investment fund industry is often motivated by the fact that dea is capable of simultaneously handling multiple input risk and multiple output return measures thereby still offering a single real number as a performance index without utilizing subjective weights to aggregate these inputs and outputs this paper aims at investigating whether dea based performance indexes previously used to assess alternative investment fund performance are actually able to satisfy these properties and to contrast the findings using a dea based performance index with those using a traditional financial performance index

school decentralization helping the good get better but leaving the poor behind abstract the decentralization of public services is a major feature of institutional innovation the main argument in support of decentralization is that it brings decisions closer to the people thereby alleviating information asymmetries and improving accountability however decentralization can also degrade service provision in poor communities that lack the ability to voice and defend their preferences in this paper we analyze the average and distributional effects of school decentralization on educational quality in argentina we find that decentralization had an overall positive impact on student test scores the decentralization gains however did not reach the poor thus although bringing decisions closer to the people may help the good get better the already disadvantaged may not receive these benefits

risk sharing across communities this paper studies cross community risk sharing there is now a large body of theoretical and empirical work on informal insurance where people mitigate risk by sharing income a consistent empirical finding is that risk sharing is not complete within villages often the observed sets of individuals 2 one reason researchers suspect is that risk sharing does not take place at the village level but between individuals and families 3 we build a theoretical model where risksharing takes place between pairs of agents there are idiosyncratic shocks to individual income and community level shocks we consider how the opportunity for cross community links affects the shape and efficiency of risk sharing arrangements we find that when links across villages form there can be less risk sharing within a village welfare is higher for those directly or indirectly connected across villages but lower for those with no path connecting them to the other village overall welfare can be higher thus empirical findings that insurance within a village is not complete is not necessarily evidence of an inefficient pattern of risk sharing relations rather the finding is consistent with risk sharing patterns that involve cross community relations and such patterns may yield higher aggregate welfare despite incomplete insurance within a village this paper makes two contributions first it demonstrates the importance of a network analysis by examining pairwise incentives to form relations and the resulting pattern we can see new risk sharing outcomes second with this network model we show how informal risk sharing across communities has both aggregate and distributional effects to study network outcomes we posit a simple two stage model first we provide a benchmark model for risk sharing for a given network then working backwards we consider incentives to form risk sharing links 4 to illustrate consider a rural population and ask how people might link

lessons for international asset allocation on the positive side and despite rumors to the contrary there is little evidence that either stock or bond markets have become more volatile worldwide second correlations between markets remain low on the negative side however correlations do appear to increase when market volatility increases that is just when the diversification potential offered by low correlations is most needed furthernore while currency risk remains a small although signifcant component of total equity risk its contribution to fixedincome risk appears to be increasing

financial education investor protection and international portfolio diversification abstract this paper investigates the effect of financial education on foreign portfolio investment we show that higher investor financial education fosters international diversification and that its role is particularly pronounced where information problems and monitoring costs are likely to be more severe that is in countries where protection of minority shareholders rights is weaker we interpret this evidence as supportive of the conjecture that financial education lessens the informational constraints binding foreign investors

a new approach to international arbitrage pricing this paper uses a nonlinear arbitrage pricing model a conditional linear model and an unconditional linear model to price international equities bonds and forward currency contracts unlike linear models the nonlinear arbitrage pricing model requires no restrictions on the payoff space allowing it to price payoffs of options forward contracts and other derivative securities only the nonlinear arbitragepricing model does an adequate job of explaining the time series behavior of a cross section of international returns the idea that a few relevant state variables explain expected returns is the main driving force of the seminal papers of merton 1973 and ross 1976 these seminal ideas have been extended to the pricing of international assets by ikeda 1991 ross and walsh 1983 solnik 1974 1983 and stulz 1981 among others the key implication of these arbitrage pricing models is that only risks related to these factors state variables are relevant in determining asset prices testable implications of these international asset pricing models have been derived either by placing restrictions on the payoff structure i e payoffs are linear in factors as in ikeda 1991 ross and walsh 1983 and solnik 1983 or on the joint distributions of the payoffs and state variables as in constantinides 1989 these restrictions lead to the testable implication that expected asset returns are linear in the conditional covariances with the factor payoffs in what follows we refer to these models as linear arbitrage models or linear models

news good or bad and its impact on volatility predictions over multiple horizons we examine whether the sign and magnitude of intra daily returns have impact on expected volatility the next day or over longer future horizons we first let the data speak namely with minimal interference we capture the mapping between intra daily returns and future volatility we revisit the concept of news impact curves introduced by engle and ng 1993 overall we find that moderately good intra daily news reduces volatility the next day while both very good news unusual high intra daily positive returns and bad news negative returns increase volatility with the latter having a more severe impact the asymmetries disappear over longer horizons we also introduce a new class of parametric models which feature asymmetries and with close ties to arch type models albeit applicable to a mixture of high and low frequency data models featuring asymmetries dominate especially during the 2007 2008 financial crisis

altruism in networks we provide the first analysis of altruism in networks agents are embedded in a fixed network and care about the well being of their network neighbors depending on incomes they may provide financial support to their poorer friends we study the nash equilibria of the resulting game of transfers we show that equilibria maximize a concave potential function we establish existence uniqueness of equilibrium consumption and generic uniqueness of equilibrium transfers we characterize the geometry of the network of transfers and highlight the key role played by transfer intermediaries we then study comparative statics a positive income shock to an individual benefits all for small changes in incomes agents in a component of the network of transfers act as if they were organized in an income pooling community a decrease in income inequality or expansion of the altruism network may increase consumption inequality

the pricing of systematic liquidity risk empirical evidence from the us stock market abstract in this study we examine whether aggregate market liquidity risk is priced in the us stock market we define a bivariate garch 1 1 in mean specification for the market portfolio excess returns and the changes in the standardized number of shares in the s p 500 index the aggregate market liquidity proxy the findings based on monthly data suggest that systematic liquidity risk is priced in the us over the period january 1973 december 1997 the liquidity premium represents a non negligible negative and time varying component of the total market risk premium whose magnitude is not influenced by the october 87 crash

risk sharing and counter cyclical variation in market correlations abstract i present a consumption based dynamic asset pricing model in which international market correlations vary counter cyclically over time the driving force in the model is the time varying effective risk aversion induced by external habit formation market returns are driven by fundamental outputs and discount rates when risk aversion is high the effect of discount rates on market returns rises with the market price of risk to the extent that countries share risk the cross country correlation of discount rates exceeds the cross country correlation of fundamental outputs in bad times market correlations rise as returns are mostly driven by discount rates thus consistent with the empirical evidence periods of high risk aversion are associated with high market correlations and high market volatility after calibration my model is consistent with the observed variation in market correlations as well as other features of asset prices including the equity premium and market volatility

the role of sentiment in global risk premia this article examines the role of sentiment for global risk premia we analyse whether the global risk premia on macroeconomic fundamentals can be estimated more thoroughly if sentiment is included as additional conditioning information the analysis is performed in the framework of a conditional multiple beta pricing model the focus of analysis is the asset excess returns of the g 7 stock markets in the period from february 1999 to february 2012 the obtained results indicate that sentiment as conditioning information is able to contribute to the explanation of the general macroeconomic risk premia

emu and european stock market integration the launch of the single currency in europe in january 1999 was preceded by a period of regulatory harmonization convergence in bond yields and inflation rates and strict fiscal policy across the eurozone countries we examine whether the 1990s also were characterized by increased stock market integration the results indicate that as forward interest differentials benchmarked against germany and inflation differentials benchmarked against the three best performing states shrank toward zero stock markets converged toward full integration the united kingdom a country that chose not to enter the eurozone shows no such increase in stock market integration

the relationship between risk and expected return in europe abstract we employ midas mixed data sampling to study the risk expected return trade off in several european stock indices using midas we report that in most indices there is a significant positive relationship between risk and expected return this strongly contrasts with the result we obtain when we employ both symmetric and asymmetric garch models for conditional variance we also find that asymmetric specifications of the variance process within the midas framework improve the relationship between risk and expected return as an additional application we analyze the extent to which european stock markets are integrated which is a particularly relevant issue especially following the launch of the euro in january 1999 finally we propose a bivariate midas specification to test the pricing significance of the hedging component within an intertemporal risk return trade off with multiple european market indices

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

does lengthening the school day increase school value added evidence from a mid income country many mid income countries face a significant and challenging problem of low educational achievement this research looks at a full time primary schools programme implemented in mexico to work out

the effects of the introduction of the euro on the volatility of european stock markets abstract have convergence of european economies and introduction of the euro produced some effects on european stock markets theory suggests that stabilization of fundamentals should decrease variance of stock returns for historically unstable stock markets we test this proposition with daily data for the period january 1988 may 2000 and apply a three regime markov switching model for the variance covariance matrix among several stock indices including the uk and the us the analysis shows that introduction of the euro after an initial burst of volatility common to all european stock markets has indeed stabilized the spanish and italian stock markets

tests of the capm with time varying covariances a multivariate garch approach this paper examines an asset pricing model in which the sharpe lintner capm and the zero beta capm are special cases the model allows the ratio of expected market risk premium to market variance the conditional expected excess returns and the risks to change over time the results are found to be sensitive to the choice of the portfolio formation techniques significant time variability is shown in the conditional expected excess asset returns and risks and also in the reward to risk ratio

the role of exchange rates in intertemporal risk return relations abstract this paper investigates the significance of an intertemporal relation between expected returns on countries stock market portfolios and their risk exposures to the world market portfolio we find that the intertemporal risk return relation differs significantly under different currency denominations the slope coefficient is the largest at around seven when the returns are denominated in japanese yen moderate at about five when the returns are denominated in the canadian or us dollars and the smallest at around three when the returns are denominated in pound or euro and its predecessors the ranking of the risk return coefficients across different currency denominations remains the same when we replace country equity indices with global industry portfolios in estimating the intertemporal relations when we change the return frequency from monthly to daily and when we consider different specifications for the conditional covariance process

why do markets move together an investigation of u s japan stock return comovements this article explores the fundamental factors that affect cross country stock return correlations using transactions data from 1988 to 1992 we construct overnight and intraday returns for a portfolio of japanese stocks using their nyse traded american depository receipts adrs and a matched sample portfolio of u s stocks we find that u s macroeconomic announcements shocks to the yen dollar foreign exchange rate and treasury bill returns and industry effects have no measurable influence on u s and japanese return correlations however large shocks to broadbased market indices nikkei stock average and standard and poor s 500 stock index positively impact both the magnitude and persistence of the return correlations stock return cross country covariances play a key role in international finance changes in these covariances affect the volatility of portfolios and asset prices as these covariances increase one expects that a fewer domestic risks are internationally diversifiable so portfolio volatility increases b the risk premium on the world market portfolio increases 1 c the cost of capital increases for individual firms and d the domestic version of the capm becomes increasingly inadequate 2 despite the important economic consequences of changes in cross country covariances the determinants of the levels and dynamics of these covariances have been little studied from an academic

consumption smoothing migration and marriage evidence from rural india a significant proportion of migration in low income countries particularly in rural areas is composed of moves by women for the purpose of marriage we seek to explain these mobility patterns by examining marital arrangements among indian households in particular we hypothesize that the marriage of daughters to locationally distant dispersed yet kinship related households is a manifestation of implicit interhousehold contractual arrangements aimed at mitigating income risks and facilitating consumption smoothing in an environment characterized by information costs and spatially covariant risks analysis of longitudinal south indian village data lends support to the hypothesis marriage cum migration contributes significantly to a reduction in the variability of household food consumption farm households afflicted with more variable profits tend to engage in longer distance marriage cum migration the hypothesized and observed marriage cum migration patterns are in dissonance with standard models of marriage or migration that are concerned primarily with search costs and static income gains