the pricing of currency risk in japan abstract previous work on the pricing of exchange rate risk has primarily focused on us firms and surprisingly found stock returns were not significantly affected by exchange rate fluctuations in this paper we conduct an in depth investigation that examines whether exchange rate risk is priced in the equity market of japan using an intertemporal asset pricing testing procedure that allows risk premia to change through time in response to changes in macroeconomic conditions our multiperiod asset pricing tests show that the foreign exchange rate risk premium is a significant component of japanese stock returns specifically the results suggest that currency risk exposure commands a significant risk premium for multinationals and high exporting japanese firms the currency risk factor is found to be less influential in explaining the behavior of average returns for low exporting and domestic firms however it is shown to exhibit large return volatility that is likely to be perceived by investors who wish to control portfolio risk as an important underlying source of risk furthermore japanese stock returns are found to be related to the relative distress and size factors above and beyond the covariation explained by the currency risk factor

energy consumption and economic growth nexus in tanzania an ardl bounds testing approach abstract in this paper we examine the intertemporal causal relationship between energy consumption and economic growth in tanzania during the period of 1971 2006 unlike the majority of the previous studies we employ the newly developed autoregressive distributed lag ardl bounds testing approach by pesaran et al 2001 bounds testing approaches to the analysis of level relationships journal of applied econometrics 16 289 326 to examine this linkage we also use two proxies of energy consumption namely total energy consumption per capita and electricity consumption per capita the results of the bounds test show that there is a stable long run relationship between each of the proxies of energy consumption and economic growth the results of the causality test on the other hand show that there is a unidirectional causal flow from total energy consumption to economic growth and a prima facie causal flow from electricity consumption to economic growth overall the study finds that energy consumption spurs economic growth in tanzania

approximate factor structures interpretations and implications for empirical tests this paper provides some new insights about approximate factor structures as defined by chamberlain and rothschild 2 and their implications for empirical tests first we show that any economy that satisfies an approximate factor structure can be transformed in a manner that does not alter the characteristics of investor portfolios into an economy that satisfies an exact factor structure as defined by ross 9 second we show that principal components analysis represents just one of many methods of forming groups of well diversified portfolios with no idiosyncratic risk in large samples correct factor loadings will be obtained by regressing security returns on any group of these portfolios our interpretations of the chamberlain and rothschild results also provide additional insights into the testability of the arbitrage pricing theory we show that securities cannot be repackaged to hide factors in the manner suggested by shanken 10 without the variance of some of the repackaged securities approaching infinity in large economies

the environmental kuznets curve and the role of coal consumption in india cointegration and causality analysis in an open economy abstract this study investigates the dynamic relationship between coal consumption economic growth trade openness and co2 emissions in case of india in doing so narayan and popp journal of applied statistics 2010 37 1425 1438 structural break unit test is applied to test the order of integration of the variables long run relationship between the variables is tested by applying the ardl bounds testing approach to cointegration developed by pesaran et al journal of applied econometrics 2001 16 289 326 the results confirm the existence of cointegration for long run between coal consumption economic growth trade openness and co2 emissions our empirical exercise indicates the presence of environmental kuznets curve ekc in long run as well as in short run coal consumption as well as trade openness contributes to co2 emissions the causality analysis reports the feedback hypothesis between economic growth and co2 emissions and same inference is drawn between coal consumption and co2 emissions moreover trade openness granger causes economic growth coal consumption and co2 emissions

co2 emissions non renewable and renewable electricity production economic growth and international trade in italy abstract this paper applies the autoregressive distributed lag ardl bounds testing approach to cointegration to investigate the dynamic causal relationships between co2 emissions per capita real gdp per capita per capita non renewable electricity production and per capita renewable electricity production and international trade in the case of italy from 1960 to 2011 we find cointegration among these variables in the presence of possible structural breaks and we overcome the problem of multicollinearity in the research design the environmental kuznets curve ekc hypothesis is validated analytically because the estimated pollution model indicates that economic growth leads to less pollution over time per capita renewable electricity production reduces the level of co2 emissions per capita in the short run and in the long run whereas international trade only impacts positively upon carbon dioxide emissions per capita in the long run international trade granger causes co2 emissions per capita and non renewable electricity production per capita moreover the results depict the existence of the long run unidirectional granger causality relation running from output per capita to renewable electricity production per capita and from non renewable electricity production per capita to renewable electricity production per capita the findings indicate that renewable electricity production is a key solution in reducing pollutant emissions over time this result should be of concern to policy makers

oil shocks and oil stocks evidence from the 1970s the present paper examines the returns to 29 oil companies listed on the new york stock exchange during the period surrounding the oil shock of 1973 the returns are decomposed into production refining foreign and domestic operations the hypothesis that domestic price controls benefitted refiners is tested finally the hypothesis that oil price risk was priced in the sense of the arbitrage pricing theory is tested

an econometric study of co2 emissions energy consumption income and foreign trade in turkey abstract this study attempts to empirically examine the dynamic causal relationships between carbon emissions energy consumption income and foreign trade in the case of turkey using the time series data for the period 1960 2005 this research tests the interrelationship between the variables using the bounds testing to cointegration procedure the bounds test results indicate that there exist two forms of long run relationships between the variables in the case of first form of long run relationship carbon emissions are determined by energy consumption income and foreign trade in the case of second long run relationship income is determined by carbon emissions energy consumption and foreign trade an augmented form of granger causality analysis is conducted amongst the variables the long run relationship of co2 emissions energy consumption income and foreign trade equation is also checked for the parameter stability the empirical results suggest that income is the most significant variable in explaining the carbon emissions in turkey which is followed by energy consumption and foreign trade moreover there exists a stable carbon emissions function the results also provide important policy recommendations

multivariate tests of the zero beta capm abstract a cross sectional regression test csrt of the capm is developed and its connection to the hotelling t2 test of multivariate statistical analysis is explored algebraic relations between the csrt the likehood ratio test and the langrange multiplier test are derived and a useful small sample bound on the distribution function of the csrt is obtained an application of the csrt suggests that the crsp equally weighted index is inefficient but that the inefficiency is not explained by a firm size effect from february to december

foreign exchange risk pricing and equity market segmentation in africa abstract this work is the first to investigate simultaneously the occurrence of unconditional currency risk pricing and equity market segmentation in africa s major stock markets the multi factor asset pricing theory provides the theoretical framework for our model we find strong evidence suggesting that africa s equity markets are partially segmented however we find insufficient evidence to reject the hypothesis that foreign exchange risk is not unconditionally priced in africa s stock markets this result is robust to alternative foreign exchange rate adjusted return measures these findings suggest that international investors can diversify into africa s equity markets without worrying about unconditional risks associated with foreign exchange rate fluctuations

environmental kuznets curve for co2 emissions the case of arctic countries abstract the main new contribution of this paper is to examine the environmental kuznets curve ekc hypothesis using time series data at individual country levels empirical focus is on the assessment of income per capita on co 2 emissions in the arctic countries by taking into account the role of energy consumption an autoregressive distributed lag ardl modeling approach to cointegration is applied to annual data for the period 1960 2010 the results provide little evidence of the existence of the ekc hypothesis for the arctic countries we also find that economic growth has a beneficial effect on the environment only in some arctic countries finally energy consumption is found to have a detrimental effect on the environment in most countries

some results in the theory of arbitrage pricing this paper derives a stronger version of huberman s recent preference free pricing theorem this pricing result relates the expected return on an asset to its factor responses and the covariance structure of the residuals from a linear factor model it must characterize any infinite asset economy in which no arbitrage opportunities are present whether or not the factor model has uncorrelated residuals this result provides the intuition for the role of residual risk in the pricing model and eliminates some classes of arbitrage opportunities still present under huberman s bound some applications to empirical tests and performance measurement are also discussed the arbitrage pricing theory is one of several financial pricing models which attempts to explain the cross sectional variation in expected returns on assets in certain respects it is similar to the capital asset pricing model but there are both substantive and subtle differences one of the key advantages of the apt is that it derives a simple linear pricing relation approximating that in the capm without some of the latter s objectionable assumptions perhaps the key disadvantage of the apt is that it provides no clues as to what might be important factors nor as to how to interpret the factor premiums which appear in the pricing equation this paper serves several purposes after reviewing the linear factor model formulation in section i it derives in section ii a stronger version of huberman s 9 recent preference free pricing theorem this pricing result relates the expected return on an asset to its factor responses and the covariance structure of the residuals this relation must characterize any infinite asset economy in which no arbitrage opportunities are present whether or not a linear factor model with uncorrelated residuals is the appropriate returns generating mechanism section iii specializes this result by eliminating the effects of residual covariances and compares the results here to those of previous apt models when applied to the standard linear factor model with uncorrelated residuals this new pricing bound eliminates arbitrage opportunities which remain under huberman s bound this result also provides for the first time the intuition for the role of residual risk in the approximate pricing relation section v provides an interpretation of the factor premiums and gives a valid asset pricing model interpretation to the apt which is consistent with merton s

does foreign direct investment lead to lower co2 emissions evidence from a regional analysis in china abstract existing studies have been concerned with the relationship between foreign direct investment and co2 emissions in recent years however little attention has been paid to regional differences in china this paper investigates the impact of fdi on china s co2 emissions at the national and regional levels using provincial panel data from 1995 to 2010 the stochastic impacts by regression on population affluence and technology stirpat model was adopted the results suggest that fdi contributes to co2 emission reductions in china fdi s impact on co2 emissions decreases from the western region to the eastern and central regions our findings support the pollution halo hypothesis which claims that foreign firms can export greener technologies from developed to developing countries and conduct business in an environmentally friendly manner

the impact of the euro on risk exposure of the world s major banking industries abstract in this paper we examine if the introduction of the euro impacted the risk exposures risk premiums and hence the cost of equity of the banking industry of 11 eurozone countries five non eurozone european countries and three non european countries using a multi factor asset pricing model that allows time variation in the risk exposures we find a statistically significant and economically large decline in the cost of equity of the banking industry across the three groups of countries following the introduction of the euro though we find an increase in the market and currency exposures after the euro consistent with increased competition among banks the fall in the cost of equity arises from an economically large decline in the currency premium as expected the eurozone banking industry experienced the largest decrease our results are inconsistent with the argument that increased banking competition arising from the legislative changes accompanying the introduction of the euro would result in an increase in the overall risk premium of the banking sector

stable factors in security returns identification using cross validation recent papers in financial research focus on identifying a stable factor structure for security returns the likelihood ratio test typically is used to determine the number of factors from exploratory factor analysis models in this article we consider the use of cross validation to identify a stable factor structure in security returns when applied to actual stock return data cross validation identifies a smaller number of stable factors than the likelihood ratio test in groups of 30 60 randomly selected securities cross validation suggests one dominant factor whereas the likelihood ratio test identifies from four to six factors furthermore when groups are designed to highlight industry or size effects the discovery of more than one dominant factor is problematic even if there are multiple economic factors generating stock returns they may be difficult to disentangle if the underlying factors tend to be correlated

joint estimation of factor sensitivities and risk premia for the arbitrage pricing theory the apt is represented as a multivariate regression model with across equations restrictions both observed and unobserved latent macroeconomic factors are included thus generalizing and unifying two previous strands of literature large portfolios representing unobserved factors are treated as endogenous and nonlinear 3sls estimates are shown to differ sharply from estimates that ignore this endogeneity using monthly stock returns and six factors we cannot reject january effects the following results are invariant with respect to the inclusioh of january effects we reject the capm in favor of the apt however we cannot reject the apt restrictions on the linear factor model most empirical work on the arbitrage pricing theory apt has followed a factor analysis approach papers by burmeister and wall 5 chan chen and hsieh 7 chen roll and ross 9 and mcelroy and burmeister 22 represent some exceptions in which measured macroeconomic factors such as unexpected inflation are used to explain asset prices in an apt or multifactor model both the factor analysis approach and the measured macroeconomic factor approach have their merits the primary advantages of using measured economic factors are 1 the factors and their apt prices in principle can be given economic interpretations while with a factor analysis approach it is unknown what factors are being priced and 2 rather than using only asset prices to explain asset prices measured macroeconomic factors introduce additional information linking asset price behavior to macroeconomic events in this exploratory paper we investigate an apt or multifactor model in which there are both measured macroeconomic factors and other nonobserved factors we impose the nonlinear across equation apt pricing restrictions exactly by using three multivariate estimation methods iterated nonlinear weighted least squares itnlwls iterated nonlinear seemingly unrelated regressions itnlsur and iterated nonlinear three stage least squares itnl3sls see gallant 13 and discussion below the appropriate estimation method depends upon alternative assumptions about the error terms nonsystematic risk in the asset returns equations the primary objective of this work is to investigate whether or not certain apt tests are sensitive to these alternative error assumptions the details of which are given in the text our focus is on the interrelation

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

nexus between clean energy consumption economic growth and co2 emissions abstract to investigate the nexus among clean energy consumption economic growth and co2 emissions a newly developed bootstrap ardl bounds test with structural breaks is employed to survey the cointegration and causality for g7 countries we find no cointegration among real gdp per capita clean energy consumption and co2 emissions in canada france italy the us and the uk however cointegration exists in germany when real gdp per capita and co2 emissions serve as dependent variables and in japan when co2 emissions is the dependent variable regarding the results of causality test that we find clean energy consumption causes real gdp per capita for canada germany and the us and co2 emissions causes clean energy consumption for germany besides we find feedbacks between clean energy consumption and co2 emissions for germany and unidirectional causality running from clean energy consumption to co2 emissions for the us our study has important policy implications for g7 countries conducting efficient energy use strategy to reduce co2 emissions

the co2 growth nexus revisited a nonparametric analysis for the g7 economies over nearly two centuries abstract using a long dataset and some recently popularized nonparametric econometric techniques this study revisits the nexus between economic growth and carbon dioxide co 2 emissions for the g7 countries over nearly two centuries the use of nonparametric modelling is warranted by the fact that long historical time series are often subject to structural breaks and other forms of nonlinearity over the course of time we employ nonparametric cointegration and causality tests along with the cross validated local linear regression analysis and validate the existence of the environmental kuznets curve in six of the g7 countries canada france germany italy u k and the u s and the only exception is japan our empirical analysis also finds co 2 emissions and economic growth to be cointegrated and closely interrelated in the granger sense our results are robust and highlight the nonlinear causal relationship between the two variables

is economic growth good or bad for the environment empirical evidence from korea abstract the effects of economic growth on the environment in korea for a given level of energy consumption and fossil fuels and nuclear energy in electricity production are examined in a dynamic cointegration framework to that end the autoregressive distributed lag ardl approach is used we find empirical evidence supporting the existence of the environmental kuznets curve ekc hypothesis for korea that is economic growth indeed plays a favorable role in influencing environmental outcomes it is also found that in both the short and long run nuclear energy has a beneficial effect on environmental quality whereas fossil fuels in electricity production and energy consumption have a detrimental effect on the environment

budget deficits inflation risk and asset prices abstract kitchen examines how us budget deficit news affects asset prices and concludes that news of lower deficits reduces the inflation risk premium this paper constructs narrative histories of several deficit reduction laws to identify when markets learned that deficits would fall it then estimates a multi factor model that allows the inflation risk premium to vary following news of deficit reductions the results indicate that there is a large and statistically significant drop in the factor price associated with inflation following news that budget deficits would decline

multi beta capm or equilibrium apt a reply in their influential empirical paper roll and ross 11 state we think that in many discussions of the capm scholars were actually thinking of the apt and of process 1 the factor model with just a single factor in light of recent developments in the asset pricing literature i think it can now meaningfully be suggested that in many discussions of the apt scholars may have actually been thinking of a multi beta interpretation of the capm indeed much can be said in support of each of these perspectives for a single paradigm is emerging which integrates fundamental aspects of both the capm and the apt broadly speaking the equilibrium capm paradigm emphasizes the role of covariance between asset returns and an endogenous preference based aggregate while the arbitrage apt paradigm focuses on the covariance between asset returns and factors in the return generating process the emerging equilibrium factor paradigm encompasses each of these relations as well as a third covariance between the factors and the equilibrium aggregate my thesis in shanken 17 was that i the arbitrage paradigm has not produced a refutable hypothesis and that ii recognition of the role of the factor aggregate covariance relation appears to be essential if positive economic significance is to be attributed to asset pricing empirical work dybvig and ross d r attempt to resolve the empirical indeterminacy of the arbitrage paradigm by appealing to the condition that residual variance should not be too large i explain in section ii that this condition is inherently ambiguous from an empirical perspective and does not permit the formulation of a precise testable implication the equilibrium factor models which d r discuss do yield testable restrictions on parameters in the return generating process however consistent with my second point above these restrictions involve joint hypotheses that cannot be verified without observing the entire universe of assets thus contrary to their claim considerations similar to those in roll s 10 critique are indeed relevant to the testing of these models this and other similarities between the equilibrium apt and the capm are discussed in section iii i begin by clarifying some basic terminology

co2 emissions energy consumption trade and income a comparative analysis of china and india in order to prevent the destabilisation of the earth s biosphere co2 emissions must be reduced quickly and significantly the causes of co2 emissions by individual countries need to be apprehended in order to understand the processes required for reducing emissions around the globe china and india are the two largest transitional countries and growing economies but are in two entirely different categories in terms of structural changes in growth trade and energy use co2 emissions from the burning of fossil fuels have significantly increased in the recent past this paper compares china and india using the bounds testing approach to cointegration and the ardl methodology to test the long and short run relationships between growth trade energy use and endogenously determined structural breaks the co2 emissions in china were influenced by per capita income structural changes and energy consumption a similar causal connection cannot be established for india with regard to structural changes and co2 emissions because india s informal economy is much larger than china s india possesses an extraordinarily large number of micro enterprises that are low energy consumers and not competitive enough to reach international markets understanding these contrasting scenarios is prerequisite to reaching an international agreement on climate change affecting these two countries

environmental kuznet s curve for india evidence from tests for cointegration with unknown structuralbreaks this study revisits the cointegrating relationship between carbon emission energy use economic activity and trade openness for india using threshold cointegration tests with a view to testing the environmental kuznet s curve hypothesis in the presence of possible regime shift in long run relationship of the variables for the period 1971 to 2008 the article confirms the existence of regime shift or threshold cointegration among the variables and environmental kuznet s curve for india it challenges previous empirical works for india which fail to establish cointegrating relationship among these variables and explains its logical and econometric reasons the study finds that the carbon emission is highly elastic with respect to real per capita income and energy use in india this finding is critical and warns successful design and execution of energy and environmental policy framework which would pave the low carbon sustainable growth path inindia

integration or segmentation of the canadian stock market evidence based on the apt the domestic and international arbitrage pricing theories are modified to encom pass the hypotheses that the canadian and global north american equity markets are com pletely or partly integrated segmented the exchange rate determination literature is used to identify potentially priced binational factors and the sensitivities and factor prices are es timated using non linear sur the two equity markets are only partly integrated segmented canadian stock returns are influenced by the pure domestic components of the term structure and lagged industrial production and by the pure international components of the differential

the effect of the fed s large scale asset purchases on inflationary expectations in 2008 u s demand collapsed and triggered deflation the fed employed large scale asset purchases lsap to fight deflation how did news of lsap affect inflationary expectations if investors believed that lsap would raise inflation they would sell assets exposed to inflation and purchase inflation hedges this would lower the prices of assets that are harmed by inflation and raise the prices of assets that benefit from inflation examining the relationship between asset price changes and inflation sensitivities can thus shed light on how financial markets process lsap news results across 60 assets indicate that initially lsap announcements lowered expected inflation only as inflation approached its target did news of lsap raise expected inflation

a new approach to testing asset pricing models the bilinear paradigm we propose a new approach to estimating and testing asset pricing models in the context of a bilinear paradigm introduced by kruskal 18 this approach is both simple and at the same time quite general as an illustration we apply it to the special case of the arbitrage pricing model where the number of factors is pre specified the data appear to be generally in conflict with a five or seven factor representation of the model used by roll and ross 30 when we consider the number of replications of our test and the large number of observations on which it is performed the frequency with which we reject the three factor apm does not lead us to conclude that this model is unrepresentative of security returns further the rejection of the five and seven factor versions is to be expected if the three factor version is correct the paradigm gives insight into the appropriate specification of the model and suggests that there may be a small number of economy wide factors that affect security returns tests of asset pricing models on the basis of observed stock market data have represented a staple of the financial economics literature of the past twenty years the early work is reviewed in the famous paper by jensen 12 and papers by fama and macbeth 6 rosenberg and marathe 31 and roll and ross 30 there has been a great deal of confusion regarding what testable propositions are implied by these models see discussion in roll 29 in this paper we show that at a minimum all asset pricing models yet proposed imply a simple easily testable hypothesis which we refer to as the bilinear hypothesis while specific models may imply further testable propositions if the bilinear hypothesis is rejected the model is inconsistent with the data and should be rejected our test exploits the fact that the economic content of any equilibrium asset pricing model can be expressed in the form of a potentially refutable constraint on the set of parameters of the process generating security returns this constraint specifies that given a set of security specific characteristics there exists a linear relationship common across securities relating expected returns to these

a critical reexamination of the empirical evidence on the arbitrage pricing theory this paper demonstrates that the roll and ross rr and other previously published tests of the apt are subject to several basic limitations there is a general nonequivalence of factor analyzing small groups of securities and factor analyzing a group of securities sufficiently large for the apt model to hold it is found that as one increases the number of securities the number of factors determined increases this increase in the number of factors with larger groups of securities cannot readily be explained by a distinction between priced and nonpriced risk factors as it is impermissible to carry out tests on whether a given risk factor is priced using factor analytic procedures the apt model as exposited by ross 17 18 and extended by huberman 9 has provided the basis of an extensive literature as for example brown and weinstein 1 chen 3 hughes 10 ingersoll 11 jobson 12 reinganum 15 roll and ross rr 16 and shanken 17 to mention but a few it has also been treated in a more general context by chamberlain and rothschild 2 our purpose here is not to comment on this collection of papers many of which are unpublished but to reexamine the evidence presented by rr and point out major pitfalls involved in the empirical methodology employed by them and others who have followed their lead rr claim that on theoretical and more importantly on empirical grounds arbitrage pricing theory apt is an attractive alternative to the capital asset pricing model capm the apt it is argued requires less stringent and presumably more plausible assumptions is more readily testable since it does not require the measurement of the market portfolio and may be better able to explain the anomalies found in the application of the capm to asset returns the acceptability of the apt like that of the capm or any other theory ultimately depends on its ability to explain the relevant empirical evidence our subsequent discussion will show that many of the prqblems associated with the capm are also present in the apt context and that its ability to explain the relevant empirical evidence is not markedly superior moreover it raises questions not only about the rr and related empirical investigations of the apt but also about the testability of that theory in the present state of the art a major part of the problem results from the necessity to break down the universe being analyzed through the apt model this is forced upon the investigator by the fact

on the relation between reschedulings and bank value the effect of developing country loan reschedulings on large u s banks is investigated using an event study methodology the major finding concerns the evolving nature of the impact of loan reschedulings during 1978 80 reschedulings had a positive effect on bank returns in contrast to the negative impact found for the 1981 83 period an explanation for these results is provided by a model of the rescheduling process that recognizes the noncompetitive aspects of rescheduling negotiation copyright 1989 by american economic association

on the robustness of the roll and ross arbitrage pricing theory roll and ross 6 have written what has quickly become the classic article on testing the arbitrage pricing theory apt originally proposed by ross 8 they presented methods both for estimating the return generating process and for testing whether particular elements factors in the return generating process were priced in equilibrium they found that more factors are priced than one would expect to be priced if the capital asset pricing model capm were held

factor pricing in a finite economy abstract prior theoretical derivations of the arbitrage pricing theory apt bound an aggregate measure of the deviation of mean asset returns from that predicted by a linear pricing equation it is conceivable given this bound that some assets might be badly mispriced by the model in this paper a more intuitive derivation of the factor pricing equation is presented which describes the deviation on an asset by asset basis the deviation is shown to be small for assets in a realistic finite economy and is arbitrarily close to zero for those assets with arbitrarily small size relative to aggregate wealth it follows that the linear pricing equation provides a good approximation for the mean returns of all traded assets

exchange rate regimes and the price of exchange rate risk abstract we investigate the price of exchange rate risk in the us stock market across exchange rate regimes we find that exchange rate risk is a priced factor and that the sign of the price of risk is affected by the exchange rate regime the results have important implications for risk management policies

foreign direct investment co2 emissions nexus in middle east and north african countries importance of biomass energy consumption abstract this study examines the association between foreign direct investment fdi and carbon emissions for the middle east and north african mena region in 1990 2015 including biomass energy consumption as an additional determinant of carbon emissions we apply the generalized method of moments gmm to validate the existence of the pollution haven hypothesis phh the n shaped association is also validated between fdi and carbon emissions the link between economic growth and carbon emissions is inverted u and n shaped that is it satisfies the environmental kuznets curve ekc hypotheses biomass energy use lowers carbon emissions and the causality analysis reveals that fdi causes co2 emissions clearly the results confirm the existence of a feedback effect between economic growth and carbon emissions the connection between biomass energy use and co2 emissions is also bidirectional the empirical findings suggest policy makers to design comprehensive trade and energy policies by targeting the cleaner production practices for not only to ensure environmental sustainability but also to fulfil the objectives of sustainable development goals

analysis of hospital production an output index approach in this study a new model of hospital costs is developed and estimated utilizing an output index this theoretically appropriate output index is constructed to accurately reflect the differentiated nature of hospital care by employing both patient and diagnosis characteristics in its construction using this output index we estimate a long run translog cost function with a dataset of 321 california hospitals for the year 2003 we find evidence of economies of scope across specialties within primary care and evidence of scope diseconomies within secondary and tertiary care point estimates of scale economies using the output index indicate that minimum efficient scale is reached at a larger level than when using less refined output measurement techniques that have often been used in similar studies our estimates indicate the importance of accounting for specialty specific scope economies when analyzing the production properties of firms producing differentiated products

the dynamic impact of renewable energy consumption on co2 emissions a revisited environmental kuznets curve approach this paper considers a revisited environmental kuznets curve ekc hypothesis with potential impact of renewable energy consumption on environmental quality to this end paper aims at investigating the validity of the ekc hypothesis employing the dependent variable of co2 emissions and regressors of gdp quadratic gdp and renewable energy consumption this paper hence analyzes this revisited ekc hypothesis to observe if i there exists an inverted u shaped relationship between environmental quality in terms of co2 emissions per capita income and per capita income squared and ii there exists a negative causality from renewables to co2 emissions within ekc model paper employs a panel data set of 17 oecd countries over the period 1977 2010 and launches panel fmols and panel dols estimations the findings support the ekc hypothesis for the panel and indicate that gdp per capita and gdp per capita squared have the impacts on co2 emissions positively and negatively respectively and that renewable energy consumption yields negative impact on co2 emissions another remark of this paper is that the validity of ekc does not depend on income level of individual countries of panel in which ekc hypothesis holds eventually paper argues that if countries carry out i policies i e for fair and easy access to the electricity from renewable sources and ii policies to increase renewables supply through i e improved renewable energy technologies they will be able to contribute to combating global warming problem as they increase their gdp s

impacts of economic indicators on environmental degradation evidence from mena countries abstract during the last two decades the relationship between macroeconomic variables and environmental pollution has been studied extensively moreover the environmental kuznets curve ekc hypothesis and the pollution haven hypothesis phh have been tested in numerous countries however the number of empirical studies focusing on testing these two hypotheses for mena middle east and north africa countries is limited and cross sectional and or time series methods were mainly utilized while the number of studies using panel econometric methodology is quite scant by using balanced panel data methodology this study aims to investigate the links and direction of causality between per capita income foreign direct investment energy use and carbon dioxide emission for mena countries for the period of 1980 2013 this study finds partial support for both the ekc and the phh for mena countries furthermore the empirical results show that foreign direct investment inflows and energy use have exacerbated pollution in the majority of mena countries

estimation of unobserved expected monthly inflation using kalman filtering hamilton developed a technique for estimating financial market expectations of inflation based on the observed time series properties of interest rates and inflation the technique is based on a state space representation derived from an underlying vector autoregressive process of the expected real interest rate and the expected inflation rate on lagged expectations and lagged values of the observed treasury bill rate and the actual inflation rate this article extends this work in two ways first we use monthly data since the quarterly data used by hamilton may obscure many interesting movements especially for determining the role of inflationary expectations in stock price movements and this is one of our primary interests second we employ an alternative method developed by burmeister and wall for estimating the parameters of the model and this method leads to a different identification proof both approaches share the use of the kalman filter to estimate the unobserved variables in this case e

experimental design in tests of linear factor models for various reasons cross sectional tests of linear factor models have employed the returns on portfolios of assets as opposed to individual securities there is a good deal of flexibility in how one goes about choosing which portfolios to examine the experimental design this article points out that some choices can lead to collinearity among factor loadings with potentially harmful consequences for power a diagnostic procedure for detecting collinearity is discussed and several illustrations of the procedure on existing tests of linear factor models are used to illustrate their value to the researcher finally a series of experiments is carried out to validate the diagnostics and to confirm their assessment of the experimental design in the models examined

are sovereign debt secondary market returns sensitive to macroeconomic fundamentals evidence from the contemporary and interwar markets abstract the insensitivity of sovereign loan secondary market returns to macroeconomic fundamentals has been attributed to market illiquidity and the absence of publicly reported transactional prices during the 1920s and 1930s sovereign bonds were traded in an active market and weekly transactional prices were publicly available this paper shows that price changes from both eras are insensitive to unexpected changes in key external and country specific macroeconomic aggregates but that returns are moved by individual agent announcements that presage changes in future lending the results which contrast with studies of us equities indicate that the sovereignty of the issuer matters more than the type of debt contract

diversification of macroeconomic risk and international integration of capital markets the case of mexico this article tests the arbitrage pricing theory in the context of the unstable macroeconomic years in mexico 1977 87 using information on returns on assets available to domestic investors primarily stocks traded at the local stock exchange an attempt is made to ascertain the extent to which these assets have offered premia for a set of proposed sources of risk the pervasive factors that play an important role in asset pricing in mexico are unexpected inflation unexpected money growth innovations in the standard poor s 500 price series and innovations in the dollar oil price a residual market factor is obtained using the mcelroy and burmeister model given that these risks get premia over and above the riskless rate expected rates of return in mexico have been higher during the years of erratic macroeconomic conditions mexico is not considered to be well integrated with the international capital markets because local sources of risk such as inflation are not priced in the united states whereas international sources of uncertainty such as oil price shocks are priced locally but not in the united states capital markets are becoming increasingly important in developing countries because of the international debt problem it seems unlikely that semi industrial nations will be able to raise substantial amounts of funds in the international financial markets the development and growth of modern domestic capital markets will allow these economies to tap additional savings and to improve the allocation of scarce funds organized and liquid capital markets are a vital factor in promoting overall development they provide a means of allocating capital to alternative private and public projects and they furnish essential information for evaluating investment undertakings ross 1978 black 1988

some empirical tests of the theory of arbitrage pricing we estimate the parameters of ross s arbitrage pricing theory apt using daily return data during the 1963 78 period we compare the evidence on the apt and the capital asset pricing model capm as implemented by market indices and find that the apt performs well the theory is further supported in that estimated expected returns depend on estimated factor loadings and variables such as own variance and firm size do not contribute additional explanatory power to that of the factor loadings

the environmental consequences of domestic and foreign investment evidence from china abstract fixed asset investment fai and foreign indirect investment fdi have important influences on economic development and environmental quality because environmental performance is related with economic development fai and fdi may affect environment indirectly through their impacts on economic growth in this study the direct and indirect effects of both fai and fdi on china s environmental quality are distinguished and separately estimated for the first time with a carefully designed framework of a two equation model because most economic activities and environmental pollutions occur in the urban areas a panel data of 112 chinese cities for the period 2002 2015 is utilized several spatial factors are also introduced to control for the potential spatial correlations in economic development and pollutant emissions the estimation results indicate that there exist apparent differences in the environmental effects of fai and fdi the direct effects of fai on so 2 emissions are significant positive and dominate the negative indirect effects by contrast the direct indirect and total effects of fdi on pollutant emissions are all negative therefore overall speaking well designed and targeted policies should be formulated to reduce the negative environmental impacts of fai and to increase the positive influences of fdi on environment

calculating the equity cost of capital using the apt the impact of the erm abstract one of the expected benefits of membership of the exchange rate mechanism erm was a reduction in risk which should lead to a lower cost of capital and foster investment and growth using the apt we investigate the behavior of the equity market risk premium for the london stock exchange prior to and during sterling s membership of the erm we find that prior to and during the first year of membership the equity market risk premium fell quite dramatically however when conflict between domestic and erm policy requirements arose at the turn of 1991 the equity risk premium increased and continued to do so until sterling s exit partially wiping out the benefits of membership of the erm

decoupling strategies co2 emissions energy resources and economic growth in the group of twenty abstract this study uses the group of twenty g20 as a representative sample of global economic development within a panel emissions energy output eeo framework over the period 1991 2016 to estimate the carbon kuznets curve ckc the clean fossil fuels energy consumption ce ff elasticity of demand for carbon emissions the causalities between emissions energy and economy and thus to propose strategy for decoupling environmental pressure from economic growth eg the results of the descriptive statistical analysis suggest an absolute decoupling effect seems to have occurred with the drop in related environmental pressure and the continuation of economic growth the panel cointegration test results show that there is a long run equilibrium relationship between carbon emissions ff real gdp and different types of ce i e new renewable ren hydropower hydro nuclear nuc the estimation results show that the ckc exists and emissions are positively elastic to ff and negatively inelastic to ren hydro nuc although ren s average per capita compound annual growth rate reached 14 the results of panel vector error correction models reveal that 1 the use of nuclear energy is a key means for dealing with carbon emissions 2 the substitutability symbiosis exists between ren hydro and ff 3 the feedback hypothesis between eg and ff ren and the hydro nuc led growth hypothesis are confirmed therefore energy saving policies may hurt eg a broad strategy for emissions energy consumption and economy decoupling are to support diversified sustainable energy consumption mix including shp ren and nuc and maintain stable economic growth thereby improving energy efficiency and safety reducing carbon dioxide intensity and thus leading the world to absolute decoupling absolute decoupling is the only way to achieve a truly sustainable future

a simple approach to arbitrage pricing theory the following sections are included introductionarbitrage pricingdiscussionreferencesdiscussion notes on the arbitrage pricing theorypure arbitrage pricing theoryapproximate arbitrage and the aptapproximate factor modelsthe competitive equilibrium version of the aptconclusionnotereferences this abstract was borrowed from another version of this item

a unified beta pricing theory abstract this paper derives ross s mutual fund separation theory and a new equilibrium version of ross s arbitrage pricing theory as special cases of a general theory the paper also reveals that the two theories are identical in their predictions of asset prices and portfolio returns the capital asset pricing model a restricted case of the mutual fund separation theory receives special treatment

environmental degradation in france the effects of fdi financial development and energy innovations abstract this paper explores the determinants of carbon emissions in france by accounting for the significant role played by foreign direct investment fdi financial development economic growth energy consumption and energy research innovations in influencing co 2 emissions function in this endeavour we employ the novel sor shahbaz et al 2017 unit root test on french time series data over the period 1955 2016 to examine the order of integration in the presence of sharp and smooth structural breaks in the variables we also apply the bootstrapping bounds testing approach recently developed by mcnown et al 2018 to investigate the presence of cointegration and the empirical findings underscore the presence of cointegration among the time series moreover we find that fdi has a positive impact while energy research innovations have a negative impact on french carbon emissions financial development lowers carbon emissions thereby improving the french environmental quality fdi degrades the environment and thus supports the pollution haven hypothesis in france similarly financial development suggests that financial stability is a required condition for improving environmental quality so are energy research innovations contrarily energy consumption is positively linked with carbon emissions however the relationship between economic growth and co 2 emissions is an inverted u which is a validation of the environmental kuznets curve ekc

energy consumption and growth in south america evidence from a panel error correction model abstract this study examines the relationship between energy consumption and economic growth for a panel of nine south american countries over the period 1980 2005 within a multivariate framework given the relatively short span of the time series data a panel cointegration and error correction model is employed to infer the causal relationship pedroni s heterogeneous panel cointegration test reveals a long run equilibrium relationship between real gdp energy consumption the labor force and real gross fixed capital formation with the respective coefficients positive and statistically significant the granger causality results indicate both short run and long run causality from energy consumption to economic growth which supports the growth hypothesis

bootstrapping the autoregressive distributed lag test for cointegration we propose a bootstrap autoregressive distributed lag ardl test by applying the appropriate bootstrap method some weaknesses underlying the pesaran shin and smith ardl bounds test are addresse

reassessing the environmental kuznets curve for co2 emissions a robustness exercise the number of studies seeking to empirically characterize the reduced form relationship between a country economic growth and the quantity of pollutants produced in the process has recently increased significantly in several cases researchers have found evidence pointing to an inverted u benvironmental kuznetsq curve in the case of co2 however the evidence is at best mixed in this paper we reconsider that evidence by assessing how robust it is when the analysis is conducted in a different parametric setup and when using alternative emissions data from the international energy agency relative to the literature our contribution can be viewed as a robustness exercise in these two respects the econometric results lead to two conclusions firstly published evidence on the ekc does not appear to depend upon the source of the data at least as far as carbon dioxide is concerned secondly when an alternative functional form is employed there is evidence of an inverted u pattern for the group of oecd countries with reasonable turning point regardless of the data set employed not so for non oecd countries as the ekc is basically increasing slowly concave according to the iea data and more bellshaped in the case of cdiac data d 2005 elsevier b v all rights reserved

arbitrage pricing theory as a restricted nonlinear multivariate regression model iterated nonlinear seemingly unrelated regression estimates by replacing the unknown random factors of factor analysis with observed macroeconomic variables the arbitrage pricing theory apt is recast as a multivariate nonlinear regression model with across equation restrictions an explicit theoretical justification for the inclusion of an arbitrary well diversified market index is given using monthly returns on 70 stocks iterated nonlinear seemingly unrelated regression techniques are employed to obtain joint estimates of asset sensitivities and their associated apt risk prices without the assumption of normally distributed errors these estimators are strongly consistent and asymptotically normal with the additional assumption of normal errors they are also full information maximum likelihood estimators classical asymptotic nonlinear nested hypothesis tests are supportive of the apt with measured macroeconomic factors

an explicit bound on individual assets deviations from apt pricing in a finite economy abstract ross s arbitrage pricing theory apt is a tractible and reasonable alternative to the mean variance model nonetheless understanding of the theory has been obscured by the complexity of the sequence economy models used for motivation by contrast we give a simple and direct derivation of the apt in a finite economy using an explicit bound on the deviations from apt prices across assets a coarse calculation shows that theoretical deviations from apt pricing are negligible in our economy

yes the apt is testable the arbitrage pricing theory apt has been proposed as an alternative to the meanvariance capital asset pricing model capm this paper considers the testability of the apt and points out the irrelevance for testing of the approximation error we refute shanken s objections including his assertion that roll s critique of the capm is applicable to the apt we also explain the testability of the apt on subsets and we explore the relationship between the apt and the capm the arbitrage pricing theory apt has been the subject of extensive research efforts since it was introduced by ross 36 37 the research has included theoretical papers and a growing empirical literature 2 nonetheless there seems to be some confusion in the literature about the relation between the theoretical underpinnings of the apt and its empirical tests this paper is an attempt to alleviate the confusion to illustrate the issues and to provide a focus section i of this paper is devoted to examining and refuting some points raised in shanken 40 which considers the testability of the apt the underlying premise of the apt is that asset returns ri are generated by a factor model of the form

general factor models and the structure of security returns based on markowitz s pioneering study 40 sharpe 56 and lintner 38 advanced the first positivist formulations of the capital asset pricing model capm their models were subsequently refined by mossin 45 fama 15 black 1 and others even though the capm has been studied extensively it has not been empirically validated according to roll 48 the capm cannot be tested in an unambiguous fashion because of a number of intractable measurement and computational difficulties and the joint nature of the hypotheses to be tested

the importance of renewable energy consumption and fdi inflows in reducing environmental degradation bootstrap ardl bound test in selected 9 countries abstract this study examines the relationship between renewable energy consumption non renewable energy consumption foreign direct investment economic growth and carbon emissions for the nine countries i e denmark finland france india italy morocco norway portugal sweden identified in the climate change performance index ccpi 2018 report this study mainly aims to demonstrate the role of renewable energy consumption and foreign direct investment on co2 emissions in countries with high scores in the ccpi using the newly developed bootstrap autoregressive distributed lag ardl approach for this purpose the unit root properties of the variables are determined by sharp and smooth structural break unit root test sor shahbaz et al 2018 we then conduct a bootstrap ardl test developed by mcnown et al 2018 to investigate the existence of cointegration we also use granger causality based on the bootstrap ardl approach to identify causal relationships between variables empirical analysis results show only a few cointegration relationships between variables exist however we have identified significant long term relationships between foreign direct investment renewable energy consumption and economic growth in some countries and our study includes important policy implications particularly for relationship among co2 emissions and foreign direct investment inflows

the impact of foreign direct investment on environmental quality a bounds testing and causality analysis for turkey abstract this study aims to investigate the impact of foreign direct investment fdi together with gross domestic product gdp the square of gdp and energy consumption on carbon dioxide co2 emissions in turkey over the period 1974 2010 we employ both the bounds test approach which has superior properties especially in small samples and the hatemi j test which takes structural breaks into consideration in the co integration analysis due to the co integration relationship between co2 emissions and other variables the autoregressive distributed lag ardl model is used in order to investigate short and long run elasticity between the variables the long run coefficients of the ardl model indicate that the effect of fdi on co2 emissions is positive but relatively small while the effects of the gdp and energy consumption on co2 emissions are quite considerable moreover the short run coefficients obtained by the error correction model ecm are found to be similar to those of the long run model the findings support the validity of the environmental kuznets curve ekc hypothesis in both time horizons the vector ecm based granger causality test is also applied to investigate the causal link the causality test results indicate the existence of a causality running from all explanatory variables to co2 emissions in the long run overall the findings suggest that turkey should promote energy efficiency with sustainable growth and encourage more fdi inflows particularly in technology intensive and environment friendly industries to improve environmental quality

a literature survey on energy growth nexus abstract this paper provides a survey of the recent progress in the literature of energy consumption economic growth and electricity consumption economic growth causality nexus the survey highlights that most empirical studies focus on either testing the role of energy electricity in stimulating economic growth or examining the direction of causality between these two variables although the positive role of energy on growth has become a stylized fact there are some methodological reservations about the results from these empirical studies a general observation from these studies is that the literature produced conflicting results and there is no consensus neither on the existence nor on the direction of causality between energy consumption electricity consumption and economic growth as a policy implication to avoid from conflicting and unreliable results the authors may use the autoregressive distributed lags bounds test two regime threshold co integration models panel data approach and multivariate models including new variables such as real gross fixed capital formation labor force carbon dioxide emissions population exchange rates interest rates etc thus the authors should focus more on the new approaches and perspectives rather than by employing usual methods based on a set of common variables for different countries and different intervals of time

the saving and investment nexus for china evidence from cointegration tests the saving and investment nexus as postulated by feldstein and horioka fh 1980 is revisited the saving investment correlation for china is estimated over the periods 1952 1998 and 1952 1994 the latter culminating in a period of fixed exchange rate regime amongst the key results it is found that saving and investment are correlated for china for both the period of the fixed exchange rate and the entire sample period with high saving investment correlation the results suggest that the chinese economy is in conformity with the fh hypothesis this is a valid outcome for in china capital mobility was fairly restricted over the 1952 1994 period as indicated by the relatively low foreign direct investment

have we underestimated the likelihood and severity of zero lower bound events prior to the financial crisis most economists probably did not view the zero lower bound zlb as a major problem for central banks using a range of structural and statistical models we find that previous research understated the zlb threat by ignoring uncertainty about model parameters and latent variables focusing too much on the great moderation experience and relying on structural models whose dynamics cannot generate sustained zlb episodes our analysis also suggests that the federal reserve s asset purchases while materially improving macroeconomic conditions did not prevent the zlb constraint from having first order adverse effects on real activity and inflation