the walking debt crisis abstract this article sheds light on the question whether arising sovereign credit risk in the emu has been triggered by the us subprime crunch by adapting recent econometric methodologies suggested in the related field of speculative bubbles we find clear evidence for fast diverging and even explosive behavior of emu government bond yields of peripheral countries relative to germany during the financial and the european debt crisis this might be caused by flight to quality effects to german government bonds coincident with the collapse of lehman brothers and by a loss of confidence in the fiscal stability of greece ireland italy portugal and spain during the european debt crisis first we find compelling evidence for bubbles in the dow jones equity real estate investment trusts reits index which serves as a weekly measure of economic activity in the north american real estate sector second in our main analysis we test whether the collapsing bubble in the housing market triggered the diverging government bond yields during two crisis regimes our findings indicate that this was the case in the course of the financial crisis but not during the emu sovereign debt crisis these results suggest that the severe fiscal problems in peripheral countries are homemade rather than imported from the us

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

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

current account imbalances and financial integration in the euro area abstract while the current account of the euro area as a whole has remained almost balanced in the past two decades several member countries have sizeable deficits or surpluses in this paper we interpret these imbalances as indicators of net capital flows among the euro area countries we distinguish between balances against the euro zone and the rest of the world and examine these for the eu 15 countries we find that for euro members the net flows follow differences in per capita incomes even before the introduction of the euro our results show further that with the introduction of the common currency the elasticity with respect to per capita incomes of net capital flows within the euro area has increased for the members of the euro zone this increase can neither be observed for the flows between the euro members and the rest of the world nor for the flows between the countries that stayed outside the monetary union and the euro zone we interpret this as evidence for increasing financial integration in the euro area there is also some evidence suggesting that the introduction of the euro has led to some financial diversion

does terrorism affect the stock bond covariance evidence from european countries using daily stock and bond returns data from four european countries france germany spain and great britain that have been the victims of significant terrorist activity this study addresses the issue of whether transnational and or domestic terrorist attacks have affected in any significant manner the time varying stock bond covariance their returns and their variances stock and bond markets can be influenced and determined not only by the usual array of macroeconomic factors but also by security shocks such as a terrorist incident that have the potential to affect investors sentiment and portfolio allocation decisions the issue at hand is addressed using a var p garch 1 1 in mean model and the results reported herein indicate that terrorist attacks trigger a flight to safety effect primarily in france and germany and to a smaller degree in great britain and spain

the determinants of asymmetric volatility volatility in equity markets is asymmetric contemporaneous return and conditional return volatility are negatively correlated in this article i develop an asymmetric volatility model where dividend growth and dividend volatility are the two state variables of the economy the model allows both the leverage effect and the volatility feedback effect the two popular explanations of asymmetry the model is estimated by the simulated method of moments i find that both the leverage effect and volatility feedback are important determinants of asymmetric volatility and volatility feedback is significant both statistically and economically the relationship between stock price and its volatility has long interested financial researchers empirically returns and conditional variance of next period s returns are negatively correlated that is negative positive returns are generally associated with upward downward revisions of the conditional volatility this empirical phenomenon is often referred to as asymmetric volatility in the literature see engle and ng 1993 zakoian 1994 and wu and xiao 1999 the presence of asymmetric volatility is most apparent during stock market crashes when a large decline in stock price is associated with a significant increase in market volatility formal econometric models have been developed by researchers to capture asymmetric volatility for example asymmetric arch models of nelson 1991 and glosten jagannathan and runkle 1993 have been found to significantly outperform their counterparts that do not accommodate the asymmetry moreover continuous time stochastic volatility models generally produce estimates of a negative correlation between return and return volatility bakshi cao and chen 1997 and bates 1997 for a review of the literature on asymmetric volatility see bekaert

substitution possibilities and determinants of energy intensity for china abstract this paper measures technological change factor demand and inter factor and inter fuel substitutability measures for china we use individual fuel price data and a two stage approach to estimate total factor cost functions and fuel share equations both inter factor and inter fuel substitution elasticities are calculated and the change in energy intensity is decomposed into its driving forces the results suggest that energy is substitutable for capital regionally and for labor nationally capital substitutes for energy more easily than labor does energy intensity changes vary by region but the major drivers seem to be budget effect and the adoption of energy intensive technologies which might be embodied in high level energy using exports and sectors capital investment and even old technique and equipment imports whether the trend in rising energy intensity continues will be significant for china and the rest of the world

new evidence that taxes affect the valuation of dividends this paper uses british data to examine the effects of dividend taxes on investors relative valuation of dividends and capital gains british data offer great potential to illuminate the dividends and taxes question since there have been two radical changes and several minor reforms in british dividend tax policy during the last 30 years studying the relationship between dividends and stock price movements during different tax regimes offers an ideal controlled experiment for assessing the effects of taxes on investors valuation of dividends using daily data on a small sample of firms and monthly data on a much broader sample we find clear evidence that taxes affect the equilibrium relationship between dividend yields and market returns these findings suggest that taxes are important determinants of security market equilibrium and deepen the puzzle of why firms pay dividends financial economists have long been puzzled by corporate dividend behavior many individual investors should value a dollar of corporate dividends less than a dollar of corporate retentions because the former gives rise to greater tax liabilities corporations however face equal costs of paying out dividends and retaining earnings miller and modigliani 31 demonstrated that in the absence of taxes dividend policy should have no effect on share valuation if dividends are tax penalized however a value maximizing firm should pay no dividends widespread dividend payments to taxable investors are therefore surprising in 1981 dividend tax revenues in the united states were estimated to exceed 20 billion dollars indeed some have interpreted the large volume of dividends paid as evidence against the rational behavior postulates typically used by economists the dividend question has stimulated a large theoretical and empirical literature concerned with the qluestion of investors valuation of dividends in particular the question of how taxes affect the market valuation of dividends has generated considerable controversy numerous studies including auerbach 2 litzenberger and ramaswamy 24 26 morgan 34 and rosenberg and marathe

bond market and stock market integration in europe a smooth transition approach this article investigates whether there has been a structural increase in financial market integration in nine european countries and the us in the period 1980 to 2003 we employ a garch model with a smoothly time varying correlation to estimate the date of change and the speed of the transition between the low and high correlation regimes our test produces strong evidence of greater comovement across the board for both stock markets and government bond markets dates of change and speeds of adjustment vary widely across country linkages stock market integration is a more gradual process than bond market integration the impact of european monetary union emu is rather limited as it has mainly affected the timing of bond market correlation gains but hardly their size and has had little discernible effect on stock market integration

foreign banks financial crises and economic growth in europe abstract using industry data from eurostat and applying the rajan zingales methodology we investigate the short run real growth effects of foreign bank presence in the european union our sample stretches from 2000 until 2012 and includes the phase of rapid financial integration before the global financial crisis as well as the following phase of financial fragmentation and bank deleveraging we find evidence that foreign bank presence had a more than four times stronger growth effect during the crisis than in normal times growth effects are also stronger in times of domestic bank deleveraging in light of these results we conclude that a reintegration of the european banking sector is an important building block of future growth perspectives in the european union

explaining international stock correlations with cpi fluctuations and market volatility this paper investigates the dynamic correlations among six international stock market indices and their relationship to inflation fluctuation and market volatility the current research uses a newly developed time series model the double smooth transition conditional correlation with conditional auto regressive range dstcc carr model findings reveal that international stock correlations are significantly time varying and the evolution among them is related to cyclical fluctuations of inflation rates and stock volatility the higher lower correlations emerge between countries when both countries experience a contractionary expansionary phase or higher lower volatilities

conditioning the return generating process on firm specific events a discussion of event study methods empirical investigations into the codetermination of security prices and eco nomic events are called event studies there are several ways of estimating the codetermination of interest since fama fisher jensen and roll 8 it has been general practice to first translate variables into rates of return then net out gen eral market movements and finally examine the relationship between residual returns and events the methodology in all of its variants fails under the rubric of 4 residual analysis empirical methods used in residual analysis deviate from the structure and terminology generally found in classical econometrics while this is not a criticism of residual analysis it results in a communication problem that is more than simply pedantic in nature a broad body of econometric literature dealing with parameter estimation statistical inference and hypothesis testing often goes untapped by empiricists in finance who within internally consistent sets of as sumptions have created a separate body of statistical methods in this paper a union of the two disciplines is advocated to provide a forum for comparing and contrasting alternative empirical methods the event study problem is broken down into three phases the parameterization of informa tion arrival applicable to the problem an examination ofthe relationship between parameters in the information arrival process and the estimates resulting from alternative estimation methods and aggregation across firms experiencing simi

can market oriented economic reforms contribute to energy efficiency improvement evidence from china since china accelerated its market oriented economic reforms at the end of 1992 its energy intensity has declined 3 6 annually over 1993 2005 however its energy intensity declined 4 2 annually during its first reform period 1979 1992 therefore can we conclude that the accelerated marketization since the end of 1992 has made no contribution to its energy efficiency improvement in order to answer this challenging question we examine the changes of energy own price elasticity as well as the elasticities of substitution between energy and non energy capital and labor in china during the periods of 1979 1992 and 1993 2003 generally in transition or developing economies holding the technology and output level fixed if the energy own price elasticity algebraic value declines or the substitution elasticity between factors rises they will contribute to energy efficiency improvement our empirical study finds that 1 during 1979 1992 the energy own price elasticity is positive 0 285 and capital energy labor energy are both morishima complementary which indicates a distorted energy price and inefficient allocation and 2 during 1993 2003 the own price elasticity for energy is negative 1 236 and capital energy and labor energy are both morishima substitute all factor demands become more elastic and all elasticities of substitution increase the implication is that the accelerated marketization contributes substantially to energy efficiency improvement since 1993 c 2006 elsevier ltd all rights reserved

how do policy and information shocks impact co movements of china s t bond and stock markets abstract we investigate the impacts of policy and information shocks on the correlation of china s t bond and stock returns using originally the asymmetric dynamic conditional correlation dcc model that allows for the coexistence of opposite signed asymmetries the co movements of china s capital markets react to large macroeconomic policy shocks as evidenced by structural breaks in the correlation following the drastic 2004 macroeconomic austerity we show that the t bond market and the bond stock correlations bear more of the brunt of the macroeconomic contractions we also find that the bond stock correlations respond more strongly to joint negative than joint positive shocks implying that investors tend to move both the t bond and stock prices in the same direction when the two asset classes have been hit concurrently by bad news but tend to shift funds from one asset class to the other when hit concurrently by good news however the stock stock correlation is found to increase for joint positive shocks indicating that investors tend to herd more for joint bullish than joint bearish stock markets in shanghai and shenzhen

test for tax effects in the pricing of financial assets this paper tests four competing hypotheses regarding taxation and the pricing of financial assets no differential tax effects in the pricing of stocks or bonds the equilibrium condition described by miller 1977 the two parameter after tax pricing equations of brennan 1970 and litzenberger and ramaswamy 1979 and dividend related clientele effects described by elton and gruber 1970 and litzenberger and ramaswamy 1980 these hypotheses make substantially different predictions about the impact of taxes on financial decisions however when stated in terms of returns the hypotheses imply parameter restrictions with the same functional form the commonality of the parameter restrictions allows simultaneous testing of all four models by testing the form of the parameter restrictions this approach differs from that of previous researchers who have by and large implicitly assumed that the parameter restrictions implied by the respective models hold see elton and gruber 1970 black and scholes 1973 1974 litzenberger and ramaswamy 1979 1980 miller and scholes 1982 conditional on this assumption parameter estimates have been made and this paper tests four models describing the impact of taxes on financial asset returns no tax effects miller s equilibrium the twoparameter pricing models of brennan and litzenberger and ramaswamy and taxinduced dividend clientele effects these tests are carried out by casting the hypotheses in terms of systems of equations and identifying the parameter restrictions implied by each of the hypotheses the systems approach is particularly useful for testing for clientele effects because we are able to identify withinand between equation restrictions without specifying the marginal tax rate of the clientele which holds a particular security my results suggest that none of tax motivated hypotheses is descriptive of the data this paper is a distillation of several research projects i have undertaken in the last two years special thanks are in order to g constantinides e fama j ingersoll a madansky and m scholes i owe a particularly important debt to merton miller for help and encouragement finally i would like to thank steve buser and e han kim

electricity consumption and economic growth in china abstract this paper applies the error correction model to examine the causal relationship between electricity consumption and real gdp for china during 1971 2000 our estimation results indicate that real gdp and electricity consumption for china are cointegrated and there is unidirectional granger causality running from electricity consumption to real gdp but not vice versa in order to overcome the constraints on electricity consumption the chinese government has to speed up the nation wide interconnection of power networks to upgrade urban and rural distribution grids and to accelerate rural electrification

dividends and capital asset prices tax based dividend models of capital asset pricing assume that dividends are known at the time prices are set dividends which are announced and paid in the same month and dividends which were expected but cancelled in the month constitute surprises which interfere with many empirical tests of the effects of expected dividend yield on returns this paper avoids these problems by relating returns to forecasts of dividend yield obtained from past data three distinct views of the importance of dividends to investors have received support at one time or another according to the two most important views dividends have a neutral and a negative effect on security prices respectively miller and modigliani 1 and miller and scholes 12 13 favor complete substitutability of dividends and capital gain brennan 6 and litzenberger and ramaswamy 9 have developed models which incorporate differential taxation of income and capital gain in these models the tax disadvantage of income changes the investor s portfolio problem from one of optimization of mean and variance of portfolio before tax return to optimization in after tax terms stocks with relatively large dividend yields should provide high expected returns and so sell for low prices to compensate the investor for the tax much of the empirical evidence seems to favor the view that tax disadvantages of dividend income do not escape investors attention and that returns are higher when they include dividend income to compensate the investor for the tax liability however interpretation of the available evidence is difficult and it is significant that most of these researchers remain unconvinced that their own findings can be satisfactorily explained by tax effects ball brown finn and officer 1 interpret their estimates as being far too strong to be explained in terms of differential taxation blume 3 reaches a similar conclusion but litzenberger and ramaswamy attribute their results to the tax disadvantage of

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

what induced china s energy intensity to fluctuate 1997 2006 abstract china is the second largest energy consumer in the world during 1997 2002 china s energy intensity declined by 33 however it rose by 10 7 over 2003 2005 and declined by 1 2 in 2006 what induced china s energy intensity to fluctuate so drastically industry accounts for approximately 70 of the total energy consumption in china in this paper we decompose china s industrial energy intensity changes between 1997 and 2002 into sectoral structural effects and efficiency effects measured by sectoral energy intensities at two digit level and including the shifts of product mix in the sub sector or firm level using tornqvist and sato vartia index methods the results show that in this period efficiency effects possibly contributed to a majority of the decline while the contribution from structural effects was less during 2003 2005 the excessive expansion of high energy consuming sub sectors and the high investment ratio were foremost sources of the increasing energy intensity attributed to the government efforts the energy intensity has started to decline slightly since july 2006 in future to save more energy in addition to technical progress china should attach more importance to optimizing its sectoral structure and lowering its investment ratio

volatility transmission between islamic and conventional equity markets evidence from causality in variance test this study examines whether a volatility risk transmission exists between the dow jones islamic stock and three conventional stock markets for the united states europe and asia during the pre and the in and post 2008 crisis periods it also explores the volatility spillover dynamics between those markets and us monetary policy oil prices global financial risk and uncertainty factors the recently developed hafner and herwartz 2006 s causality in variance test provides evidence of risk transfers between these seemingly different equity markets indicating a contagion between them during the full sample and the subperiods the volatility structure of these markets is dominated by short run volatility in the first period and by high long run volatility in the second period the volatility impulse response analysis indicates a similar volatility transmission pattern although it is characterized by a more volatile and short lived structure in the second period it also appears that the islamic equity ma

return risk and yield evidence from ex ante data the purpose of this study is to investigate the relationship between return and yield in the context of ex ante data from the value line investment survey and by examining the role of dividends as a proxy for risk the use of ex ante data should substantially reduce the confounding of tax and information effects that has affected earlier studies heteroscedasticity is detected in the after tax capm and found to be negatively related to yield and positively related to beta maximum likelihood methods are used to correct for heteroscedasticity and generate efficient coefficient estimates using data for each of the years 1973 through 1983 there is an overall positive relationship between expected return and yield however coefficient estimates of yield are highly variable from year to year the relationship between dividend yields and security returns is currently a subject of extensive research in finance empirically a positive relationship is found by blume 5 gordon and bradford 12 elton gruber and rentzler

currency composition of international bonds the emu effect abstract we analyze the impact that the launch of the emu had on the currency denomination of private international bond issues in 1990 2006 using micro level data our stylized model predicts that the introduction of the euro would lead to an increase in the share of euro denominated debt and a decline in the share of dollar denominated debt issued by firms located in countries outside both the united states and the euro area moreover our model predicts that the euro effect would be particularly pronounced for nonfinancial firms our empirical results are consistent with these predictions in addition we find that among nonfinancial firms the impact on new issuers is larger than on seasoned issuers extending the model to allow for differences in issuance volumes across future monetary union countries prior to integration we also predict larger increases in euro denominated issuance among firms from smaller monetary union countries we confirm this prediction for international bond issues by euro area firms

energy consumption economic growth and prices a reassessment using panel vecm for developed and developing countries this paper reinvestigates the energy consumption gdp growth nexus in a panel error correction model using data on 20 net energy importers and exporters from 1971 to 2002 among the energy exporters there was bidirectional causality between economic growth and energy consumption in the developed countries in both the short and long run while in the developing countries energy consumption stimulates growth only in the short run the former result is also found for energy importers and the latter result exists only for the developed countries within this category in addition compared to the developing countries the developed countries elasticity response in terms of economic growth from an increase in energy consumption is larger although its income elasticity is lower and less than unitary lastly the implications for energy policy calling for a more holistic approach are discussed c 2006 elsevier ltd all rights reserved

virtual integration of financial markets a dynamic correlation analysis of the creation of the latin american integrated market this article investigates the role of virtual integration of financial markets on stock market return co movements in may of 2011 the chilean colombian and peruvian stock markets virtually integrated their stock exchanges and central securities depositories to form the latin american integrated market mila we utilize the dynamic conditional correlation model proposed by engle 2002 to identify a statistically significant positive correlation between these markets moreover we find strong evidence that the creation of the mila increased the levels of dynamic correlation between stock returns a higher correlation was also found during the dot com bubble and the 2007 financial crises our results imply a decline in gains from international diversification by holding portfolios consisting of diverse stocks of these countries

international co movements of real and financial economic variables this study presents a first attempt at investigating whether the international co movements of real economic activity conform to the same international co movements of financial activity this study tests the international co movements of real economic activity on the one hand and financial variables such as stock returns interest rates inflation rates and risk premiums on the other hand we employ a dynamic correlation model on data from oecd countries for the period 1980 2010 our findings demonstrate that international stock markets co react in accordance with the underlying international economic forces we also document three other results first the correlation among countries with respect to real economic activity is statistically positive but the level of this correlation is lower than that of financial variables second there is a significant increase over time in the international correlation level with respect to the financial variables finally the creation of the euro monetary union

trends in stock bond correlations abstractprevious studies document the existence of long run trends in comovements in the stock and bond markets following these findings this article examines possible trends in stock bond return correlations to this end we introduce a trend component into a smooth transition regression str model including the multiple transition variables of aslanidis and christiansen 2012 the results indicate the existence of significant decreasing trends in stock bond correlations for many advanced safer countries in addition although stock market volatility continues to be an important factor in stock bond correlations the short rate and yield spread become only marginally significant once we introduce the trend component our out of sample analysis also demonstrates that the str model including the volatility index and time trend as the transition variables dominates other models furthermore we find a significant increase in stock bond correlations for riskier euro countries around the beginning of th

dynamics of international integration of government securities markets abstract this paper investigates the dynamics of international government bond market integration in six of the g7 economies over two decades leading up to the global crisis it examines whether such integration had been significant the extent to which integration at the short and long end of the yield curve differed the nature of such integration and the extent of the decoupling of the long rates from short rates these issues are investigated using the rigorous smooth transition copula garch model framework the results show that integration at the long end of the yield curve had been increasing had become pronounced and was significantly greater than at the short end decoupling between the short and long end of the yield curve was notable with important implications for the efficacy of monetary policy in the period before the crisis

do market capitalization and stocks traded converge new global evidence abstract in this paper we examine convergence of stock markets our empirical exercise is based on 11 different panels which together consist of 120 countries the richness of the dataset allows us to disaggregate countries into panels such as high income middle income low income oecd csi and developing country panels in addition we construct regional panels such as those representing the arab states east asia and the pacific south asia latin america and the caribbean and sub saharan africa our main finding is that based on the conditional convergence model convergence of stock market capitalization and stocks traded is found for four panels namely the high and low income panels the oecd panel and the sub saharan african panel the speed of convergence is high in most cases between 20 and 30

extreme coexceedances in new eu member states stock markets abstract we analyze the financial integration of the new european union eu member states stock markets using the negative positive coexceedance variable that counts the number of large negative large positive returns on a given day across the countries a similar analysis is performed for the old eu countries we use a multinomial logit model to investigate how persistence asset classes and volatility are related to the coexceedance variables we find that the effects differ a between negative and positive coexceedance variables b between old and new eu member states and c before and after the eu enlargement in 2004 suggesting a closer connection of new eu stock markets to those in western europe

an empirical analysis of stock and bond market liquidity this article explores cross market liquidity dynamics by estimating a vector autoregressive model for liquidity bid ask spread and depth returns volatility and order flow in the stock and treasury bond markets innovations to stock and bond market liquidity and volatility are significantly correlated implying that common factors drive liquidity and volatility in these markets volatility shocks are informative in predicting shifts in liquidity during crisis periods monetary expansions are associated with increased liquidity moreover money flows to government bond funds forecast bond market liquidity the results establish a link between macro liquidity or money flows and micro or transactions liquidity a number of important theorems in finance rely on the ability of investors to trade any amount of a security without affecting the price however there exist several frictions 1 such as trading costs short sale restrictions and circuit breakers that impact price formation the influence of market imperfections on security pricing has long been recognized liquidity in particular has attracted a lot of attention from traders regulators

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

exchange rate regime volatility and international correlations on bond and stock markets focusing on the recent experience of the ems the paper examines the behavior of domestic daily returns on bond and stock markets with the objective of identifying whether there exist significant differences in the patterns of volatilities and international correlations between erm and non erm countries and across alternative episodes of erm exchange rate variability the paper provides substantial evidence that a credible peg is associated with a decline in bond market volatility the analysis also shows that an increase in exchange rate volatility is accompanied by a decline in international correlations between bond and to a lesser extent stock markets c 1999 published by elsevier science ltd all rights reserved

testing for a break in the persistence in yield spreads of emu government bonds this study tests for a break in the persistence of emu government bond yield spreads examining data from france italy and spain and using german interest rates as a kind of benchmark the results reported here provide evidence for breaks between 2006 and 2008 the persistence of the yield spreads against german government bonds has increased signicantly after this period this could be a sign of higher sovereign credit risk and possibly even redenomination risk caused by the debt crisis in the euro area we nd long memory behavior before and after the breakpoints and empirical evidence for positive excess kurtosis and garch eects when persistence

european financial market dependence an industry analysis this paper uses a copula model to investigate the degree and determinants of european market dependence across 10 industries in 12 euro zone and 8 non euro zone stock markets during the period 1992 2011 most of the industries in euro countries show a dependence increase with the euro area after the introduction of the euro the effects are strongest in countries with larger market capitalization and in the financials industrials consumer goods utilities technology and telecommunications industries overall the export intensity interest rate sensitivity and competitiveness of an industry and the financial development and economic openness of a country are the most important determinants of changes in equity market dependence the period around the lehman collapse also shows higher equity market dependence between european countries while the lower dependence increase during the period of the recent european sovereign debt crisis suggests that country specific factors may matter more than before

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

modeling asymmetric comovements of asset returns existing time varying covariance models usually impose strong restrictions on how past shocks affect the forecasted covariance matrix in this article we compare the restrictions imposed by the four most popular multivariate garch models and introduce a set of robust conditional moment tests to detect misspecification we demonstrate that the choice of a multivariate volatility model can lead to substantially different conclusions in any application that involves forecasting dynamic covariance matrices like estimating the optimal hedge ratio or deriving the risk minimizing portfolio we therefore introduce a general model which nests these four models and their natural asymmetric extensions the new model is applied to study the dynamic relation between large and small firm returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

asset market linkages in crisis periods we characterize asset return linkages during periods of stress by an extremal dependence measure contrary to correlation analysis this nonparametric measure is not predisposed toward the normal distribution and can allow for nonlinear relationships our estimates for the g 5 countries suggest that simultaneous crashes between stock markets are much more likely than between bond markets however for the assessment of financial system stability the widely disregarded cross asset perspective is particularly important for example our data show that stock bond contagion is approximately as frequent as flight to quality from stocks into bonds extreme cross border linkages are surprisingly similar to national linkages illustrating a potential downside to international financial integration

the impacts of energy prices on energy intensity evidence from china in this paper we present a review of the deregulation of energy prices in china between 1985 and 2004 and assess the impacts of changes in energy prices on aggregate energy intensity and coal oil electricity intensity we used time series data to provide estimates of energy price elasticities empirical results showed that 1 the own price elasticities of coal oil and aggregate energy were negative in periods both before and after 1995 implying that higher relative prices of different energy types lead to the decrease in coal oil and aggregate energy intensities however the positive own price elasticity of electricity after 1995 probably indicates that the price effect was weaker than other factors such as income effect and population effect 2 the impacts of energy prices were asymmetric over time 3 sectoral adjustment also drove the decrease in aggregate energy intensity although raising energy prices to boost efficiency of energy use seems to be an effective policy tool other policy implications concerned with energy prices such as energy supply security and fuel poverty must also be considered