does employment protection create its own political support this paper investigates the ability of employment protection to generate its own political support a version of the mortensen pissarides model is used for this purpose if wages are set through nash bargaining workers value employment protection because it strengthens their hand in wage negotiations workers in high productivity matches benefit most from higher wages as they expect to stay employed for longer by reducing turnover employment protection shifts the distribution of match specific productivity toward lower values thus stringent protection in the past actually reduces support for employment protection today introducing involuntary separations reverses this conclusion now workers value employment protection because it delays involuntary dismissals workers in low productivity matches gain most since they face the highest risk of dismissal the downward shift in the productivity distribution is now a shift towards supporters

stock market capitalization and financial integration in the asia pacific region the stock market capitalization smc of a country defined as the aggregated market value equity of companies in the respective equity market is commonly used to measure the widening and deepening of stock market activity smc also influences economic growth predictions and public consensus concerning the value of the stock market however no previous work has examined the role this variable plays in the process of financial integration this article provides an argument for the use of smc as a means of deciding which countries are acting as leaders in creating a fully integrated equity market in the asia pacific region a total of 12 countries in the asia pacific region were divided into emerging market and advanced market equity blocks we examine the relative size of the speed of adjustments derived from the error correction models following the engle granger two step procedure framework and apply the granger causality test the results suggest that hong kong special administrative region sar

analysis of employment protection laws and unemployment benefits abtract this paper presents an empirical model that analyzes the relationship between employment protection legislation and unemployment benefits we emphasize the censoring and arbitrary weights problems and propose an alternative method that resolves both problems simultaneously

modelling long run comovements in equity markets a flexible approach abstract international equity markets linkages are characterized by nonlinear dependence and asymmetries we investigate shifts in long run comovements in stock markets by means of an interrupted markov switching cointegration specification this flexible approach allow us to study to what extent documented changes in global integration are permanent or whether market linkages are subject to changes using an illustrative sample from 1980 to 2012 for usa uk and hong kong stock price indices we find evidence of interrupted cointegration across these markets between may 1997 and april 2002 which is consistent with the decoupling of stock prices from fundamentals during the dot com bubble

comovements in national stock market returns evidence of predictability but not cointegration abstract this paper is a response to the literature that tests for cointegration between national stock market indices it argues that apparent findings of cointegration in other studies may often be due to the use of asymptotic rather than small sample critical values in fact economic theory suggests that cointegration is unlikely to be observed in efficient markets however this paper finds evidence for the predictability of relative returns and the existence of a winner loser effect across 16 national equity markets a conclusion is that national stock market indices include a common world component and two country specific components one permanent and one transitory

optimal welfare to work programs a welfare to work wtw program is a mix of government expenditures on various labour market policies targeted to the unemployed e g unemployment insurance m job search monitoring m social assistance sa wage subsidies this paper provides a dynamic principal agent framework suitable for analysing chief features of an optimal wtw program such as the sequence and duration of the different policies the dynamic pattern of payments along the unemployment spell and the emergence of taxes subsidies upon re employment the optimal program endogenously generates an absorbing policy of last resort social assistance characterized by a constant lifetime payment and no active participation by the agent human capital depreciation is a necessary condition for policy transitions to be part of an optimal wtw program the typical sequence of policies is quite simple the program starts with standard ui then switches into monitored search and finally into sa the optimal benefits are decreasing during unemployment insurance and constant during both jm and sa whereas taxes subsidies can be either increasing or decreasing with duration during ui they must decrease increase during a phase of jm in a calibration exercise we use our model to analyse quantitatively the features of the optimal program for the u s economy with respect to the existing u s system the optimal wtw scheme delivers sizeable welfare gains to unskilled workers because the incentives to search for a job can be retained even while delivering more insurance and using costly monitoring less intensively

taxation of temporary jobs good intentions with bad outcomes this paper analyzes the consequences of the taxation of temporary jobs recently introduced in several european countries to induce firms to create more open ended contracts and to increase the duration of jobs the estimation of a job search and matching model on french data shows that the taxation of temporary jobs does not reach its objectives it reduces the mean duration of jobs and decreases job creation employment and welfare of unemployed workers we find that a reform introducing an open ended contract without layout costs for separations occurring at short tenure would have opposite effects

housing market regulation and the social demand for job protection abstract controlling for country fixed effects there is a positive and statistically significant relationship between the degree of housing market regulation hmr and the strictness of employment protection legislation epl in oecd countries we provide a model in which hmr increases foreclosure costs in case of mortgage default while epl raises the administrative cost of dismissal owing to banks lending behavior individuals demand for job protection increases with the cost of foreclosure we use the model to discuss social housing and family insurance the case for mortgage unemployment insurance the impact of min down payment policies regulations on the use of fixed term contracts the failure of a 2006 french reform of labor contracts and feed back effects from hmr to epl

measuring market integration foreign exchange arbitrage and the gold standard 1879 1913 a major question in the literature on the classical gold standard concerns the efficiency of international arbitrage authors have examined efficiency by looking at the spread of the gold points gold point violations or the flow of gold or by tests of various asset market criteria including speculative efficiency and interest arbitrage these studies have suffered from many limitations both methodological and empirical we offer a new methodology for measuring market integration based on nonlinear theoretical models and threshold autoregressions we also compile a new high frequency series of continuous daily data from 1879 to 1913 we can derive reasonable econometric estimates of the implied gold points and price dynamics the changes in these measures over time provide an insight into the evolution of market integration

leads lags and trading in global markets the development of capital markets around the world has given rise to growing interest in how the markets are linked this study using the dow jones company country and industry indexes found that the united states has statistically significant one day leads over markets in europe and asia that no significant leads extend beyond one day that changes in foreign exchange rates contribute to the links among markets and that the industries designated global are significantly more sensitive to leads than are local industries lead lag relationships may allow yield enhancement possibly even arbitrage through trading futures in some markets

international stock market linkages evidence from the pre and post october 1987 period abstract this paper uses recent developments in the theory of cointegration to provide new methods of testing the linkage and dynamic interactions among stock market movements our findings are in sharp contrast with previous research which discovered strong interdependence among national stock markets prior to october 1987 for the post october 1987 period however our results show that the degree of international co movements among stock price indices has increased substantially with the nikkei index the only exception furthermore the us stock market is found to have a considerable impact on the french german and uk markets in the post crash period we also find the response of the french german and uk markets to us stock market innovations to be consistent with the view of cross border informationally efficient stock markets finally we find the japanese equity market performance to have no links with both the us stock market and the stock markets in france germany and uk during the pre and post october crash period

market overreaction and investment strategies we investigated the overreaction of the korean market in response to shocks in the us stock market and analysed the dynamic relationship between these two markets since 1996 we found that the kospi 200 index futures overreacted to the s p 500 index returns during the period from 2000 to 2009 when the korean market was in its growth stage as the korean market matured and the kospi 200 overnight futures were introduced in 2009 the overreaction disappeared when investors employed the kelly model or value at risk to exploit the overreaction their trading strategies produced significant profits during the growth stage even after considering transaction costs and risk but the profits attenuated once the overnight futures market was launched in 2009

optimal use of labor market policies the role of job search assistance abstract this paper demonstrates how economic theory can be combined with state of the art empirics to make quantitative statements about optimal policy using a large administrative data set for west germany as well as nonparametric and semiparametric estimation techniques i parameterize the model proposed by pavoni and violante 2005 2007 for the optimal choice of different financial and activation measures for unemployed workers the parameterized model is used to study the role of job search assistance in optimal welfare to work programs and assess the optimality of the west german policy in the period 2000 to 2002

job displacement and the transitions to re employment and early retirement for non employed older workers abstract despite the relatively higher frequency of job displacement among older workers in europe little is known about its effect on the work retirement decision employing individual data from the european community household panel for a number of countries with differences in their institutional environments the effect of job displacement for non employed workers is identified separately for the transitions into re employment and retirement the findings suggest that in countries with relatively more generous unemployment insurance provisions for the older unemployed which offer a pathway to early retirement older displaced workers exhibit lower re employment and higher retirement rates compared to the non displaced these results are robust to dynamic selection due to unobserved heterogeneity and to the endogeneity of displacement

global and regional linkages across market cycles evidence from partial correlations in a network framework using a novel approach partial correlations within a complex network framework we examine the degree of globalization and regionalization of stock market linkages and how these linkages vary acro

a positive theory of the earnings relationship of unemployment benefits in a wage bargaining model a stronger earnings relationship of unemployment benefits may reduce wages therefore the benefit structure significantly influences profits and trade union utility raising the question as to how the benefit structure is determined in the political process we consider a government that chooses the earnings relationship in order to maximize its political support our model predicts a strong earnings relationship under right wing governments and a weak relationship when unions are influential using panel data for 19 oecd countries we find support for these theoretical predictions moreover we show that the earnings relationship varies negatively with openness

productivity gains from unemployment insurance this paper argues that unemployment insurance increases labor productivity by encouraging workers to seek higher productivity jobs and by encouraging rms to create those jobs we use a quantitative model to investigate whether this eect is comparable in magnitude to the standard moral hazard eects of unemployment insurance our model economy captures the behavior of the u s labor market for high school graduates quite well with unemployment insurance more generous than the current u s level unemployment would increase by a magnitude similar to the micro estimates but because the composition of jobs also changes total output and welfare would increase as well

search frictions real wage rigidities and the optimal design of unemployment insurance abstract in this paper we study the optimal unemployment benefits financing scheme when the economy is subject to labor market imperfections characterized by real wage rigidities and search frictions the us unemployment insurance financing is such that firms are taxed proportionately to their layoffs to finance unemployment benefits using dsge methodology we investigate how policy instruments should interact with labor market imperfections it is shown that wage rigidities in a search and matching environment cause welfare costs especially in the absence of an incentive based unemployment insurance this cost is mainly due to the distorting effect of wage rigidities which generate inefficient separations we show that the optimal unemployment benefits financing scheme corresponding to the ramsey policy offsets labor market imperfections and allows implementation of the pareto allocation the second best allocation brings the economy close to the ramsey allocation the implementation of the optimal policies clearly highlights the role of labor market institutions for short run stabilization

a theory of the stakeholder corporation there is a widely held view within the general public that large corporations should act in the interests of a broader group of agents than just their shareholders the stake holder view this paper presents a framework where this idea can be justified the point of departure is the observation that a large firm typically faces endogenous risks that may have a significant impact on the workers it employs and the consumers it serves these risks generate externalities on these stakeholders which are not inter nalized by shareholders as a result in the competitive equilibrium there is under investment in the prevention of these risks we suggest that this under investment problem can be alleviated if firms are instructed to maximize the total welfare of their stakeholders rather than shareholder value alone stakeholder equilibrium the stake holder equilibrium can be implemented by introducing new property rights employee rights and consumer rights and instructing managers to maximize the total value of the firm the value of these rights plus shareholder value if there is only one firm the stakeholder equilibrium is pareto optimal however this is not true with more than one firm and or heterogeneous agents which illustrates some of the limits of the stake holder model

unemployment insurance strengthening the relationship between theory and policy ever since the u s federal state system of unemployment insurance was founded in the 1930s it has provided partial temporary replacement of wages to eligible workers who lose jobs through no fault of their own as determined by state level regulations unemployment insurance is one of the largest social insurance programs in the united states with benefits paid totaling about 34 billion in 2004 this figure is considerably smaller than for social security medicare or medicaid but it exceeds spending on such major programs as workers compensation temporary assistance to needy families tanf or food stamps in this paper we focus on the ways economic theory can help us understand the challenges that this complex program is likely to face over the next few years we begin by summarizing the salient characteristics of the unemployment insurance program and then examine the theoretical and econometric research much of this research revolves around the main goals of the program which include 1 sustaining consumption for workers and their families 2 helping recipients to make efficient job choices during a period of financial stress and 3 minimizing the adverse incentives that may accompany partial wage replacement of course these goals can come into conflict for example if replacing wages for an unemployed worker also discourages that worker from aggressively searching for or accepting a new job and our discussion will focus on these conflicts with this background we then conclude with a discussion of the key policy issues that the unemployment

a common features analysis of amsterdam and london financial markets during the eighteenth century we examine the financial linkage between the london and amsterdam financial markets using stock prices recorded in each market over the period 1723 94 in conjunction with tests for common trends cycles and regime shifts these tests reveal a surprising degree of integration between the markets as their prices move together in both the short and long run moreover shocks to the assets translate quickly and accurately between markets it also appears that dutch investment did not destabilize london markets and stock prices in london were the primary determinant of prices in amsterdam

cross border mergers and acquisitions by oil and gas multinational enterprises geography based view of energy strategy abstract given that global crude oil prices are significantly dropped and business consolidation transactions are markedly increased in recent years this paper to date is the first to examine the cross border merger and acquisition strategy of oil and gas multinational enterprises using a fine tuned sample of 150 large scale oil acquisition transactions us 535 billion announced by oil and gas enterprises from over 50 countries during the period 2005 2015 we endeavor to answer four fundamental research questions who is where what for who is there why who is where and there and who is a serial acquirer to do so we propose an integrated framework of geography based view of energy strategy by leveraging theoretical insights from the energy economic geography international business strategy and corporate finance literature on top of that we discuss the dynamics of the oil and gas industry and show the remarkable trends in the crude oil prices over the past three decades 1990 2016 our geographic analyses highlight that state owned oil companies from asia and a less extent europe have rapidly expanded into resource rich countries such as canada and the us to secure oil reserves as well as acquire industry specific strategic assets this research contributes to the geography based view of energy strategy and discusses policy and managerial implications to sustain the world oil and gas industry

the international transmission of information in eurodollar futures markets a continuously trading market hypothesis abstract this paper studies the transmission of information in three eurodollar futures markets the imm simex and liffe the results show that relevant information is revealed during the trading hours of the imm and liffe but not the simex the interest rates of the three markets are cointegrated with a single common stochastic trend granger causality runs from the market that is placed in the last trading order within 24 hours in the vector error correction model and this causal relationship is shorter than one day an approach of variance decomposition and impulse response functions exploring the common factor in the cointegration system is employed analogous to the causality results the common factor is driven by the last trading market in the 24 hour trading sequence specifically each market while it is trading impounds all the information and rides on the common stochastic trend the overall results suggest that these three markets can be considered one continuously trading market

nonlinear integration of london and amsterdam stock markets in the 1700s the financial markets in london and amsterdam were some of the first to develop using threshold autoregressive models we use data on two commonly traded stocks in these cities to show that the joint behaviour of the prices is consistent with the theory of arbitrage in the presence of transportation costs the results suggest that prices converged more quickly as the price difference between the two markets increased we also show that the threshold estimates are consistent between assets and across time these results provide some of the earliest evidence of nonlinear mean reversion in asset prices in geographically separate financial markets

dividend taxes and international portfolio choice this paper investigates how dividend taxes influence portfolio choices using the response to the distinctive treatment of a subset of foreign dividends in the jobs and growth tax relief reconciliation act jgtrra of 2003 an open economy after tax capital asset pricing model is used to derive the hypothesis that jgtrra should lead to a portfolio reallocation by us investors towards equities in tax favored countries a difference in difference analysis that compares us equity holdings in affected and unaffected countries finds a substantial portfolio reallocation towards the former this effect cannot be explained by several potential alternative hypotheses including differential changes to the preferences of american investors differential changes in investment opportunities differential time trends in investment changed tax evasion behavior or changes in stock prices associated or contemporaneous with jgtrra

the benefits from international diversification for nordic investors abstract in this paper we investigate the magnitude of the benefits from international diversification from the nordic point of view special attention is paid to whether potentially increased co movement of stock markets together with more volatile nordic currencies have resulted in decreased benefits from international diversification towards the end of the 1980s moreover the paper presents evidence on the benefits from international diversification for a currency which has recently started its free float the finnish markka fim we find significant increases in stock market co movement both unhedged ex ante strategies as well as strategies hedged for exchange rate risk are investigated revealing substantial benefits from international diversification for the nordic countries however we obtain mixed results concerning the question of the optimality of hedging

international transmission of stock market movements this paper investigates the international transmission mechanism of stock market movements by estimating a nine market vector autoregression var system using simulated responses of the estimated var system we i locate all the main channels of interactions among national stock markets and ii trace out the dynamic responses of one market to innovations in another generally speaking a substantial amount of multi lateral interaction is detected among national stock markets innovations in the u s are rapidly transmitted to other markets in a clearly recognizable fashion whereas no single foreign market can significantly explain the u s market movements also the dynamic response pattern is found to be generally consistent with the notion of informationally efficient international stock markets

modelling the linkages between us and latin american stock markets this paper examines the linkages between us and latin american stock markets during the 1995 2002 period using recently developed cointegration techniques that allow for structural shifts in the long run relationship results suggest that when conventional cointegration tests are applied a long run relationship is found only in the cases of brazil and mexico for the dow jones dj index and in the case of brazil for the standard and poor s 500 sp500 index in contrast if the possibility of structural breaks is introduced strong evidence is found in favour of such a relationship between the argentine chilean and venezuelan indices and the dj index after the 1998 financial turmoil and between the brazilian and mexican indices and the dj index before such turbulence while some marginal cointegration is detected between the mexican and dj indices from february 1998 additionally evidence is found of a cointegrating relationship between the argentine chilean and mexican indices and the sp500 index f

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

financial integration in european equity markets the final stage of economic and monetary union emu and its impact on capital markets this paper examines the extent of financial integration in european equity markets before during and after the adoption of the single currency on 1 january 1999 two groups of european economies are examined the first set comprises the member states of the european union eu that participated in the euro the euro 11 austria belgium finland france germany ireland italy luxembourg netherlands portugal and spain the second set consists of the remaining members of the euro 15 denmark greece sweden and the united kingdom along with norway and switzerland multivariate cointegration procedures granger causality tests and generalised variance decomposition analyses based on error correction and vector autoregressive models are conducted to examine long and short run relationships among these markets the results indicate that there is a stationary long run relationship and significant short run causal linkages between the equity markets of both the euro and non euro currency areas however while the large equity markets remain the most influential the lower causal relationships that exist between these and at least some middle belgium spain and netherlands and small ireland luxembourg finland and norway equity markets suggests that opportunities for international portfolio diversification in european equity markets may still exist

from pigou to extended liability on the optimal taxation of externalities under imperfect financial markets an important contribution of economics to public policy rests on the precept that price signals should force producers of externalities to internalize the welfare of other economic agents pigou 1920 s celebrated insight on the taxation of externalities provided an intellectual foundation for a variety of policies from pollution taxes permits to experience rating pigovian taxation s policy appeal is limited if the polluter has insufficient resources to pay the damage when it occurs to defend pigovian taxation in the presence of judgment proof agents its proponents point at the many institutions extending liability to third parties yet little is known about the validity of pigou s analysis in this context the paper analyzes the costs and benefits of extended liability and investigates whether full internalization is called for in the presence of agency costs between potential polluters and providers of guarantees its contribution is two fold it first shows that the better the firms corporate governance and the stronger their balance sheet the more closely taxes should track the corresponding externality it then develops the first analysis of extended liability when guarantors themselves may be judgment proof and the extension of liability may give rise to further externalities relatedly it derives the curvature of the optimal taxation of externalities in a multiplant firm

social security and old age unemployment risk with efficient wage bargaining i analyze a life cycle economy with old age productivity risk where wages employment and severance payments are set through efficient bargaining between risk averse unions and risk neutral firms allocations with limited union membership are second best inefficient as they generate too little labor supply in young age too much consumption before retirement too little employment of older workers early retirement and too little insurance against old age unemployment providing public transfers to early retirees disability benefits or early pensions might help to increase the degree of risk sharing at the cost of lower old age employment depending on whether absolute risk aversion is increasing or decreasing in consumption these policies might or might not produce efficiency gains at equilibrium

short time work benefits revisited some lessons from the great recession the great recession triggered a resurgence of short time work stw throughout the oecd several countries introduced stw from scratch or significantly expanded the scope of the programmes already in place in some countries like italy japan and germany between 2 5 and 5 of the workforce participated in stw schemes at the trough of the recession in this paper we analyse the rationale for stw benefits and their effects on labour adjustment from both a cross country and a time series perspective we find that stw actually contributed to reduce job losses during the great recession however the number of jobs saved according to our macroeconomic and microeconomic estimates is smaller than the number of participants in these schemes and the full time equivalent jobs involved pointing in some countries to sizeable deadweight costs other institutions like plant level bargaining over hours wages and employment levels may be more effective than stw in encouraging adjustment along the intensive margins in the presence of temporary shocks our results also suggest that stw cannot be readily extended to countries having much different institutional configurations as the demand for stw is very much affected by other institutions such as employment protection legislation and the degree of centralization of collective bargaining furthermore stw must be temporary as during upturns may actually negatively affect employment we also find that specific design features of stw such as experience rating and disincentives to 100 reductions in working hours are important in improving the cyclical properties of stw tito boeri and herbert bruecker

unemployment insurance in europe unemployment duration and subsequent employment stability the disincentive effect of unemployment insurance on unemployment duration has been the focus of the empirical literature the potential effect of unemployment insurance on post unemployment outcomes which may be regarded as beneficial by improving job matching has attracted much less attention this paper provides evidence on the effect of unemployment benefits on unemployment and employment duration in europe using individual data from the european community household panel for eight countries country specific estimates based on multivariate discrete time duration models controlling for observed and unobserved individual heterogeneity suggest that although receiving benefits has an adverse effect in the sense of increasing unemployment duration there is also a positive effect by increasing subsequent employment duration this beneficial effect of unemployment insurance on employment stability is pronounced in countries with relatively generous benefit systems and for recipients who have remained unemployed for at least six months these findings are in line with theories suggesting a matching effect of unemployment insurance

further evidence on international islamic and conventional portfolios diversification under regime switching abstractthis article investigates the comparative performance of international islamic and conventional portfolio diversification across different financial market regimes and provides an optimal choice from an american investor s viewpoint during the period 2002 2014 using a bootstrap based stochastic dominance sd test and monthly msci prices of islamic stock market indices and their conventional counterparts in 38 countries from north and latin america europe and asia pacific regions we find that sd relationships between islamic and conventional optimal diversified portfolios change systematically according to investment region and market regime essentially for all regimes us investors are indifferent between islamic diversification and its conventional counterpart which implies that arbitrage diversification opportunities are rare and short lived in all regions however across all regions especially in a crisis regime islamic portfolio diversification can be a good substitute for convention

international trade risk taking and welfare this paper shows that the gains from opening up to international trade are smaller when firms do not fully internalize downward risk i develop a general equilibrium model with two key assumptions first when faced with adverse productivity shocks employers can lay off workers without fully paying the social costs of their layoff decisions a common feature of many institutions second when opening to international trade the elasticity of demand perceived by an industry increases in this setup i show that international trade induces firms to take more risk and i raises the equilibrium unemployment rate ii increases the volatility of sectoral sales and iii increases welfare proportionately less than in the absence of the externality inducing firms to internalize the costs of layoff blanchard and tirole 2003 therefore appears even more important in a globalized world

layoff taxes and minimum wage two complementary public policies in a matching model in which the job destruction rate and the output are endogenous we show that the presence of a binding minimum wage prompts firms to choose too risky jobs introducing layoff taxes therefore reduces unemployment and improves market efficiency

optimal unemployment insurance this paper considers the design of an optimal unemployment insurance system the problem is modeled as a repeated principalagent problem involving a risk averse agent the unemployed worker and a risk neutral principal which cannot monitor the agent s search effort the optimal long term contract subject to the associated incentive constraints is characterized this contract involves a replacement ratio that decreases throughout the unemployment spell and a wage tax after reemployment that under some mild regularity conditions increases with the lenght of the unemployment spell some numerical results are presented that suggest that the gains from switching to this optimal unemployment insurance scheme could be quite large the performance of this optimal contract is also compared to alternative liquidity provision mechanisms

linkages in international stock markets evidence from a classification procedure in this article we propose a new approach to evaluate the predictable components in stock indices using a boosting based classification technique and we use this method to examine causality among the three main stock market indices in the world during periods of large positive and negative price changes the empirical evidence seems to indicate that the standard poors 500 index contains incremental information that is not present in either the ftse 100 index financial times stock exchange index or the nikkei 225 index and that could be used to enhance the predictability of the large positive and negative returns in the three main stock market indices in the world this in turn would suggest a causality relationship running from the standard poors 500 index to both the ftse 100 and the nikkei 225 indices

economic integration and country allocation in europe the impact of european integration at the company and macro levels on correlations between stock market returns is analyzed a new procedure based on randomization methodology is introduced to test for the absence of country systematic differences in the return patterns of two stock markets the results indicate that stock market integration in europe is not yet complete but the comovement of european markets has increased substantially and is likely to continue to grow therefore top down managers of european equity portfolios need to look for a new strategy other than country based allocation

the joint design of unemployment insurance and employment protection a first pass unemployment insurance and employment protection are typically discussed and studied in isolation in this paper we argue that they are tightly linked and we focus on their joint optimal design in a simple model with risk averse workers risk neutral firms and random shocks to productivity we show that in the first best unemployment insurance comes with employment protection in the form of layoff taxes indeed optimality requires that layoff taxes be equal to unemployment benefits we then explore the implications of four broad categories of deviations from first best limits on insurance limits on layoff taxes ex post wage bargaining and ex ante heterogeneity of firms or workers we show how the design must be modified in each case finally we draw out the implications of our analysis for current policy debates and reform proposals from the financing of unemployment insurance to the respective roles of severance payments and unemployment benefits

the week end effect in common stock returns the international evidence this paper examines the daily stock market returns for four foreign countries we find a so called week end effect in each country in addition the lowest mean returns for the japanese and australian stock markets occur on tuesday the remainder of the paper answers four questions are seasonal patterns in foreign stock markets independent of those previously reported in the u s do japan and australia exhibit a seasonal one day out of phase due to different time zones do settlement procedures across countries bias week end effects does the seasonal pattern in foreign exchange offset the week end effect in stocks for americans investing overseas some of the most anomalous empirical findings in finance are associated with the sample distributions of daily common stock returns cross 1 french 2 gibbons and hess 3 and keim and stambaugh 4 have documented that the average return on friday is abnormally high and the average return on monday is abnormally low to our knowledge this so called day of the week effect or week end effect has yet to be explained because this anomaly has been reported primarily for u s stock returns it is appropriate to investigate whether similar results occur for other countries positive findings would strongly support the proposition that the weekly seasonal effect is a general world wide phenomenon rather than the result of a special type of institutional arrangement in the u s to shed more light on this proposition our paper examines stock market returns in the u k japan canada and australia since we find a week end effect in each country we can examine a set of interesting questions for example are these seasonals independent of the previously reported seasonal in the u s due to different time zones do far eastern countries exhibit a seasonal one day out of phase do different settlement procedures across countries influence weekend effects does the seasonal in foreign exchange fluctuations see mcfarland pettit and sung 7 and levi 6 offset the week end effect in stock market returns for americans investing overseas

the dynamic relationship between stock returns and trading volume domestic and cross country evidence abstract this paper examines the dynamic relations causal relations and the sign and magnitude of dynamic effects between stock market trading volume and returns and volatility for both domestic and cross country markets by using the daily data of the three largest stock markets new york tokyo and london major findings are as follows first trading volume does not granger cause stock market returns on each of three stock markets second there exists a positive feedback relationship between trading volume and return volatility in all three markets third regarding the cross country relationships us financial market variables in particular us trading volume contains an extensive predictive power for uk and japanese financial market variables fourth sub sample analyses show evidence of stronger spillover effects after the 1987 market crash and an increased importance of trading volume as an information variable after the introduction of options in the us and japan

financial market integration in the early modern period in spain results from a threshold error correction model abstract the application of a threshold error correction model to the exchange rates of the spanish ducado and the dutch groat in seville and medina del campo in the 16th century indicates that the band of arbitrage inactivity was 6

common stochastic trends in a system of eurocurrency rates abstract this paper investigates the temporal relationship between interest rates on eurodeposit instruments ranging in maturity from seven days to one year for seven different currency denominations over the 1986 1992 period multivariate tests of cointegration reveal strong evidence in favor of the presence of common factors in the univariate time series representation of each eurocurrency term structure specifically the hypothesis of noncointegration was rejected in all seven eurocurrency term structures of interest rates examined in this study this is consistent with the hypothesis that each eurocurrency term structure of interest rates possesses a cointegrating structure that prevents these rates from drifting too far apart from equilibrium so that profitable opportunities do not persist the estimation of an error correction model which used this information i e the cointegrating equilibrium error term produced interest rate forecasts that outperformed the forecasts of a naive and a var model that ignore the cointegration of eurodeposit rates finally we examined the extent of interdependence among five maturities of seven dimensional intercurrency eurodeposit rate series and found a strong cointegrating structure across intercurrency eurodeposit rates that forces convergence among these rates

long and short term dynamic causal transmission amongst international stock markets abstract this paper investigates the dynamic causal linkages amongst nine major international stock price indexes in order to gauge the causal transmission patterns we employ very recent methods of i vector error correction modeling and ii level var modeling with possibly integrated and cointegrated processes advocated by i toda and phillips econometrica 61 1993 1367 and ii toda and yamamoto j econometrics 66 1995 225 respectively the paper illustrates how such methods may be appropriately augmented in a compatible fashion to unearth previously unfounded linkage properties inherent amongst a system of stock price indexes in particular we demonstrate that previous research by using ordinary difference vars ignored an important component of linkages displayed purely over the long run this untapped evidence essentially provides robust and very useful information to international financial analysts and investors at a substantive level 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 also the leadership of the us and uk markets over the short and long run the levels var however illustrate the japanese market s influence as an additional long run leader findings seem to be plausible given 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 at a methodological level this analysis also provides a primer for the wealth of applied financial econometric research focusing on dynamic causal inference which involve systems containing possibly integrated and cointegrated processes

russian equity market linkages before and after the 1998 crisis evidence from stochastic and regime switching cointegration tests abstract this paper examines the relationships between russian and other equity markets over the period of 1995 2004 to account for potential instability in the market relationships we apply a number of cointegration approaches gregory hansen 1996 residual based tests for cointegration in models with regime shifts journal of econometrics 70 99 126 test which allows for a structural break in the relationships a stochastic cointegration framework by mccabe 2003 testing for stochastic cointegration and evidence for present value models working paper the non parametric test by breitung 2002 nonparametric tests for unit roots and cointegration journal of econometrics 108 2 343 363 and a regime switching cointegration model in the spirit of ho 1999 financial liberalization and international capital mobility of taiwan a regime switching approach asian economic journal 13 4 407 417 the tests point to a significant agreement that the russian equity market remained isolated from the influence by international markets in the long run and that while a structural break might have occurred in august 1998 this did not alter the nature of long run relationships

efficient unemployment insurance this paper constructs a tractable general equilibrium model of search with risk aversion an increase in risk aversion reduces wages unemployment and investment unemployment insurance has the opposite effect insured workers seek high wage jobs with high unemployment risk an economy with risk neutral workers achieves maximal output without any unemployment insurance but an economy with risk averse workers requires a positive level of unemployment insurance to maximize output therefore moderate unemployment insurance not only improves risk sharing but also increases output

employment protection reform in search economies the design of employment protection legislation epl is of particular importance in the european debate on the contours of labor market reform in this article we appeal to an equilibrium unemployment model to investigate the virtues of epl reform which reduces the red tape and legal costs associated with layo s and introduces a u s style experiencerating system which we model as a combination of a layo tax and a payroll subsidy the reform considered shows that it is possible to improve the e ciency of employment protection policies without a ecting the extent of worker protection on the labor market these results are consistent with the conventional wisdom that experience rating is desirable not only as an integral component of unemployment compensation nance as most studies acknowledge but also as part and parcel of a virtuous epl system

intraday volatility in international stock index futures markets meteor showers or heat waves the international transmission of intraday price volatility among the united states united kingdom and japanese stock index futures markets in the period 1988 1994 is investigated in this paper the empirical results based on extreme value estimators and vector autoregression indicate the rapid transmission of information between markets the volatilities of the u s and u k futures markets appear to follow a meteor shower rather than a heat wave type of process this means that these volatilities react to shocks from other markets i e they cannot be described only by their past values however the heat wave hypothesis is not rejected for the japanese market meaning that the shocks to japanese volatility are mostly country specific a multivariate garch model supports the u k and japanese but not the u s results

labor market institutions and long term effects of youth unemployment graduating from a school during a time of adverse economic conditions has a persistent harmful effect on workers subsequent employment opportunities an analysis of panel data from oecd countries during the 1960 2010 periods reveals that a worker who experiences a 1 percentage point higher unemployment rate while the worker is 16 24 years old has a 0 14 percentage point higher unemployment rate at ages 25 29 years and 0 03 percentage points higher at ages 30 34 years the persistence of this negative effect is stronger in countries with stricter employment protection legislation a composite index for labor market rigidity is constructed and the index is shown to have positive correlation with the persistence moderating macroeconomic fluctuations is more important in countries that have more persistent labor market entry effects on subsequent outcomes

international diversification through closed end country funds abstract the primary objectives of this paper are to assess the potential of closed end country funds cecfs as vehicles for achieving international diversification at home and to examine the effect of the closed end status of these funds on their investment characteristics the main findings are first cecfs exhibit significant exposure to the u s market factor and act more like u s securities than do their underlying assets second despite these characteristics cecfs retain significant exposure to their local home market factors and provide u s investors with substantial diversification benefits emerging market funds such as brazil mexico and taiwan receive large weights in optimal international portfolios comprised of cecfs implying that these funds can play a unique role in spanning the opportunity set for u s investors third performance evaluations indicate that our sample cecfs generally did not offer significant overseas alphas fourth fund value and net asset value are found to be co integrated for the majority of cecfs from north america and europe but not for those representing the asian emerging markets

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

diversifying away the risk of war and cross border political crisis this paper investigates the behavior of crude oil prices government bonds and stock market indices around outbreaks of severe international crises and wars using a constant mean return event study we show that these events are associated with positive and significant abnormal returns on oil and bonds which means that these two asset classes can potentially shelter shareholders from plummeting equity values during international crises a formal safe haven analysis confirms this insight such price movements may reflect a reallocation of funds across asset classes in response to the events as well as shifts in the demand for oil due to precautionary speculative and military motives we also calculate the weights for optimal portfolios which could provide insurance against conflict risk