global factors and emerging market spreads this paper shows that a large fraction of the variability of emerging market bond spreads is explained by the evolution of global factors such as risk appetite as reflected in the spread of high yield corporate bonds in developed markets global liquidity measured by the international interest rates and contagion from systemic events like the russian default this link has remained relatively stable over the history of the emerging market class is robust to the inclusion of country specific factors and helps provide accurate long run predictions overall the results highlight the critical role played by exogenous factors in the evolution of the borrowing cost faced by emerging economies

the earnings and human capital of american jews this paper analyzes the earnings and returns from human capital investments of second generation american jews compared with non jews jewish men have 16 percent higher earnings other things the same a 20 percent higher rate of return from schooling and a steeper experience earnings profile these patterns persist even after controlling for occupation self employment status and geographic concentration in the new york area there are no systematic differences among jews by parents country of birth the findings suggest that american jews are more productive in creating and using human capital and that this has encouraged greater investments in human capital

debt maturity and the international financial architecture this paper presents a theory of the maturity of international sovereign debt and derives its implications for the reform of the international financial architecture the analysis is based on a model in which the need to roll over external debt disciplines the policies of debtor countries but makes them vulnerable to unwarranted debt crises due to bad shocks the paper presents a welfare analysis of several measures that have been discussed in recent debates such as international lending in last resort or the establishment of a mechanism for suspending payments on the external debt of crisis countries jel f34 o19

excessive volatility in capital flows a pigouvian taxation approach this paper analyzes prudential controls on capital flows to emerging markets from the perspective of a pigouvian tax that addresses externalities associated with the deleveraging cycle it presents a model in which restricting capital inflows during boom times reduces the potential outflows during busts this mitigates the feedback effects of deleveraging episodes when tightening financial constraints on borrowers and collapsing prices for collateral assets have mutually reinforcing effects in our model capital controls reduce macroeconomic volatility and increase standard measures of consumer welfare

term premia on euro rates there are at least two statistically firm results regarding international money and capital markets the first is the theory of interest rate parity is empirically valid for euro interest rates 8 the second is forward exchange rates are poor very likely biased predictors of future spot exchange rates 1 3 10 12 13 the former is a comforting finding in that it assures there are no unexploited arbitrage profits the latter is troubling to some because it might be a symptom of an inefficient market that interest rate parity holds suggests international exchange and money market arbitrageurs are fully exploiting all profit opportunities they are behaving rationally that forward exchange rates fail to predict future spot rates at least unbiasedly suggests the existence of some unknown mechanism which robs predictive ability in a naive rational expectations view of the world the failure of forward rates to be unbiased predictors of future spot rates implies either that there is some difference between interest rate pairs other than inflationary expectations or that forward rates do not capture expected inflation differences in any simple way see 9 this paper addresses the first issue if there are differences in interest rate pairs which do not solely reflect expected inflation divergences this must show up as a difference in real interest rates such could be the result of actual instantaneous real rates of identical risk being unequal in magnitude or what is more likely differences in term premia between interest rate pairs when periods greater than say one day are used in interest rate parity and forward rate prediction tests if there are differential term premia in interest rate pairs of say one month or longer then forward exchange rates will mispredict the future spot exchange rate by that margin

the effects of religion and denomination on earnings and the returns to human capital the effects of religious and denominational background on earnings and the returns to human capital are examined when religious differences are constrained to be additive apart from a jewish differential there is virtually no evidence that religious or denominational background affects earnings this contrasts with greeley s claims of sizable catholic advantage in separate earnings regressions we find that the marginal returns to catholics from college education exceed those to similar protestants this offsets the disadvantage of lower precollege returns earnings differences between protestant denominations appear to reflect the sorting of protestants into denominations according to schooling and income

the arbitrage pricing model and returns on assets under uncertain inflation the impact of inflation on equilibrium returns in capital markets has been the subject of several articles in recent years chen and boness 1 friend landskroner and losq 4 long 7 and roll 13 have all constructed general equilibrium models which incorporate the impact of uncertain inflation on returns all of these authors have derived models in a mean variance world utilizing methodologies similar to that first utilized by mossin 9 or merton 8 the basic underlying tenet of mean variance analysis is that for any given level of expected return investors wish to minimize the variance of return in mean variance equilibrium models the only risk that cannot be diversified away is the covariance of an asset s return with the market return assets which have the same covariance with the market have the same equilibrium required return thus in a mean variance world if each member of the following pairs of assets had the same covariance with the market each member would have the same expected return a a stock which was a perfect hedge against inflation versus one which was not b a stock which was a perfect hedge against oil price changes versus one which was not c a security that hedged against interest rate changes versus one which did not in this article we break out of the limitations of the mean variance assumptions by utilizing the arbitrage pricing theory apt of ross 15 16 17 this

macroeconomic policies and performance in latin america abstract this paper provides new evidence on macroeconomic policies and results in latin america and the caribbean results are i credibility allows adoption of counter cyclical macroeconomic policies ii accuracy in meeting inflation targets depends on central bank independence and country risk iii intermediate exchange rate er regimes have become less persistent iv er regimes matter for inflation and growth v real er trends are not explained by productivity growth and supply reforms do not resolve real er misalignments vi financial integration has increased significantly vii foreign shocks are a major growth determinant and viii composition of foreign capital inflows matters for growth

inflation risk and international asset returns abstract we show that inflation risk is priced in international asset returns we analyze inflation risk in a framework that encompasses the international capital asset pricing model icapm of adler and dumas 1983 in contrast to the extant empirical literature on the icapm we relax the assumption that inflation rates are constant we estimate and test a conditional version of the model for the g5 countries france germany japan the uk and the us over the period 1975 1998 and find evidence of statistically and economically significant prices of inflation risk in addition to priced nominal exchange rate risk our results imply a rejection of the restrictions imposed by the icapm in an extension of our analysis to 2003 we show that even after the termination of nominal exchange rate fluctuations in the euro area in 1999 differences in inflation rates across countries entail non trivial real exchange rate risk premia

u s real interest rates and default risk in emerging economies we empirically analyse the appropriateness of indexing emerging market sovereign debt to us real interest rates we find that policy induced exogenous increases in us rates raise default risk in emerging market economies as hypothesised in the theoretical literature however we also find evidence that omitted variables which simultaneously increase us real interest rates and reduce the risk of default dominate the hypothesised relationship we can only conclude that it s not a good idea to index emerging market bonds to us real interest rates

collective moral hazard maturity mismatch and systemic bailouts the paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy when everyone engages in maturity transformation authorities haver little choice but facilitating refinancing in turn refusing to adopt a risky balance sheet lowers the return on equity the key ingredient is that monetary policy is non targeted the ex post benefits from a monetary bailout accrue in proportion to the number amount of leverage while the distortion costs are to a large extent fixed this insight has important consequences first banks choose to correlate their risk exposures second private borrowers may deliberately choose to increase their interest rate sensitivity following bad news about future needs for liquidity third optimal monetary policy is time inconsistent fourth macro prudential supervision is called for we characterize the optimal regulation which takes the form of a minimum liquidity requirement coupled with monitoring of the quality of liquid assets we establish the robustness of our insights when the set of

financial globalization and debt maturity in emerging economies this paper studies how financial globalization affects debt structure in emerging economies we find that by accessing international markets firms increase their long term debt and extend their debt maturity in contrast with financial liberalization long term debt decreases and the maturity structure shifts to the short term for the average firm these effects are stronger in economies with less developed domestic financial systems the evidence is consistent with financial integration having opposite effects on the firms that are able to integrate with world markets and obtain financing globally relative to the firms that rely on domestic financing only

emerging local currency bond markets in this article the authors assess local currency bond markets in emerging market economies emes supported by policies and laws that helped improve macroeconomic stability and creditor rights local currency eme bond markets have grown substantially over the past decade and have provided usd based investors with attractive returns u s investors have responded by sharply increasing their holdings of eme local currency bonds especially in emes with investor friendly institutions and policies

the accumulation of human capital during marriage by males married males have significantly higher wage rates than never married widowed or divorced males even when differences in educational attainment experience race and so on are controlled for evidence presented in this paper suggests that most of the unexplained wage differential associated with marital status in earnings regressions results from males accumulating human capital more rapidly when they are married than when those same males are not married the hypothesis that married males earn more than unmarried males because marriage facilitates the financing of human capital accumulation is supported by this and other evidence

sudden stops are global and local investors alike the main goal of this paper is to characterize the determinants of sudden stops caused by domestic vis a vis foreign residents are the decisions of domestic investors to invest abroad or of foreign investors to cut off funds from the domestic economy governed by the same set of determinants given the distribution of different types of sudden stop episodes over time and its different macroeconomic consequences the authors argue that the determinants may not be alike using an effective sample of 82 countries with annual information over the period 1970 2007 the analysis finds that global investors are less likely to stop bringing their capital when their economy is growing and the world interest rate is lower domestic agents are more willing to invest abroad if the macroeconomic performance of the domestic economy is poor high inflation the financial system is weak and there are high external savings current account surpluses increasing financial openness makes the domestic country more vulnerable to sudden stops caused by either local or global investors finally countries with higher shares of foreign direct investment are less prone to inflow driven sudden stops whereas the opposite holds for outflow driven sudden stops

treasury bill factors and common stock returns capital asset pricing theory gives a linear ex ante relationship between a security s return and one special portfolio return the return on all assets this linear equation is called the capital asset pricing model capital asset pricing theory alone provides no empirical hypotheses because it is derived and defined wholly with expectations tests of empirical hypotheses with historical data require an additional proposition that relates ex ante and ex post returns a model for this second proposition is called a return generating equation arbitrage pricing theory gives a more compact method for deriving a linear ex ante security return model in the arbitrage theory developed by ross 6 the return generating equation is the basis for the ex ante return relationship briefly an approximate linear expected return equation is derived directly from the return generating equation so two separate models are not required in addition the ex ante return equation is defined in terms of an arbitrary number of special factor portfolio returns rather than a single market portfolio return in this sense arbitrage pricing theory has richer implications and a simpler structure than capital asset pricing arbitrage pricing theory starts with a linear return generating equation for each security

the federal reserve the emerging markets and capital controls a high frequency empirical investigation in this paper i use weekly data from seven emerging nations four in latin america and three in asia to investigate the extent to which changes in fed policy interest rates have been transmitted into domestic short term interest rates during the 2000s the results suggest that there is indeed an interest rates pass through from the fed to emerging markets however the extent of transmission of interest rate shocks is different in terms of impact steady state effect and dynamics in latin america and asia the results also indicate that capital controls are not an effective tool for isolating emerging countries from global interest rate disturbances changes in the slope of the u s yield curve including changes generated by a twist policy affect domestic interest rates in emerging countries i also provide a detailed case study for chile

common stocks as hedges against shifts in the consumption or investment opportunity set the purpose of this paper is to explore the potential of using common stocks as hedges against unanticipated shifts over time in investors consumption or investment opportunity sets the generalized or multiperiod capital asset pricing model capm developed in different forms by merton 1973 long 1974 richard 1977 and breeden 1979 forms the basis for this exploration in this model shifts in investors consumption or investment opportunity sets are caused by changes in the stochastic elements of the state of the world that affect investor taste for wealth the state of the world is defined in terms of the level of state variables so that unanticipated changes in the levels of the state variables imply or are associated with changes in the state of the world the analysis of this paper does not constitute a test of the generalized capm because hedging potential is a necessary but not sufficient condition for the generalized capm to improve upon the traditional two factor model the existence of hedging potential is of interest in itself howthis paper contains an investigation of the potential for using nyse stocks as hedges against changes in the consumptioninvestment opportunity set we perform this investigation under two characterizations of a multiperiod or generalized capital asset pricing model we find sufficient crosssectional dispersion in common stock return covariances with unanticipated changes in real gnp the price level and aggregate consumption that hedge portfolios offer meaningful hedging potential in the portfolioformation period the positive hedging potential persists out of the portfolio formation period but is strongly significant only for consumption

the importance of brand and competition in defining u s religious markets author affiliation brian goff department of economics 1906 college heights boulevard western kentucky university bowling green ky 42101 usa brian goff wku edu corresponding authormichelle w trawick dagger department of economics 1906 college heights boulevard western kentucky university bowling green ky 42101 usa michelle trawick wku edu acknowledgment the authors thank bob tollison colleagues participating in the economics workshop at wku and two anonymous reviewers for comments any remaining flaws are the authors responsibility 1 introductionover the past 40 years economists have vastly expanded their study of behavior in markets where there is no explicit trade of goods or services one of the most fundamental and ubiquitous of these markets is that of religious behavior where economists and other social scientists have explored a variety of influences on religious participation at the outset of this research program economic models of religious choice borrowed from long used choice theoretic concepts such as the law of demand or the cost of time more recent contributions have included household production models taking account of human capital or the role of market level forces particularly religious competition prior empirical research has resulted in the identification of a variety of determinants of religious participation these include income education race and the degree of monopolization or competitiveness in the religious market as the empirical application and testing of these models has proceeded researchers have been aware of problems in measuring various aspects of religious choice such as religious participation or religiosity at the most general level religiosity may imply a difference in a secular versus religious worldview at the level of actual observation it often measures how frequently one attends church while some of the basic measurement issues related to religious choice and behavior may be beyond the power of researchers to investigate one important aspect is not but has largely been overlooked that is the type or brand of religious choice by and large empirical research has skirted this important definitional issue and treated different types or brands of religious choice much like one would treat different brands of carbonated soft drinks using such a broad homogeneous definition of the religious product implicitly assumes that economic and demographic characteristics exert similar influences on different types or brands of religious participation and thereby assumes that such branding is not of empirical significance in defining religious markets and behavior within them 1 moreover some tension has existed in prior empirical work as to whether religious competition is an exogenous factor the common assumption or whether it helps to define the choice variable 2our central question is whether the same processes are driving religiosity across brands we ask do consumers of religion respond differently to key economic variables such as income religious competition or other factors based on the brand of religion being consumed likewise do some economic variables exert their influence independently of brand an important part of our investigation centers on how to measure brand we first rely on two indicators of brand broad denominational categories and intensity of participation in religious activity the denominational categories are mainline protestant evangelical protestant and catholic the intensity breakdown is based on geographic regions of low moderate and high religious participation in addition we also examine whether the degree of religious competition itself helps to define brand in the next section we develop theoretical explanations for variation in overall religious participation as well as by brand and discuss prior empirical work in this area

banks debt maturity and financial crises abstract we develop a model in which the maturity of external debt of banks their level of international reserves and the term structure of interest rates are jointly determine self fulfilling runs may occur and banks take this possibility into account when choosing the structure of their assets and liabilities if the probability of a run is sufficiently small banks will deliberately choose an illiquid asset liability position and expose themselves to a run in that case short term debt will be cheaper than long term debt and the maturity structure of foreign debt will depend on attitudes towards risk

a nonlinear general equilibrium model of the term structure of interest rates abstract we derive and test an alternative closed form general equilibrium model of the term structure within the cox ingersoll and ross theoretical framework in which yields are nonlinear functions of the risk free rate we show that equilibrium bond prices and the risk free rate are not always inversely related and that bond risk need not be strictly increasing in maturity using hansen s generalized method of moments to obtain parameter estimates this nonlinear model outperforms the cox ingersoll and ross square root model in describing actual treasury bill yields for the 1964 1986 period

the cyclical properties of disaggregated capital flows abstract we analyze the second moment properties of the components of international capital flows and their relationship to business cycle variables output investment and the real interest rate in 22 industrial and emerging countries total inward flows are procyclical with respect to all three macro variables net outward flows are countercyclical with respect to output and investment in most industrial and emerging countries disaggregated inward flows positively comove with output in industrial countries and with investment and the real interest rate in the g7 economies inward foreign direct investment is the only non procyclical type of inward capital flows with respect to output in the developing economies formal statistical tests based on nonparametric bootstrap techniques detect significant variance increases in all g7 countries disaggregated capital flows over exogenous and endogenously estimated breaks

investment and time to plan and build a comparison of structures vs equipment in a panel of italian firms time to build models of investment expenditures play an important role in many traditional and modern theories of the business cycle especially for explaining the dynamic propagation of shocks we estimate the structural parameters of a time to build model using annual firm level investment data on equipment and structures for expenditures on equipment we find no evidence of time to build effects beyond one year for expenditures on structures by contrast there is clear evidence of such effects in the range of two to three years the contrast between equipment and structures is intuitively reasonable and consistent with previous results the estimates for structures also indicate that initial period expenditures are low and increase as projects near completion these results provide empirical support for including time to plan effects for investment in structures more generally these results suggest a potential source of specification error for q models of investment and production based asset pricing models that ignore the time required to plan build and install new capital jel d24 g31 c33 c34

mutual funds flows and the geography of contagion abstract this paper studies the dynamics and geography of investments made by international mutual funds located in advanced markets i identify precise global and regional dynamics in equity and bond flows very few countries receive or lose funding in isolation i also find strong evidence of global contagion when financial conditions in developed markets change emerging markets funding is heavily affected i illustrate this finding by deriving contagion maps showing where contagion spreads and with what intensity in general the results suggest that push effects from advanced market investors affect massively developing countries and expose them to sudden stops and surges

an international comparison of capital structure and debt maturity choices this study examines how the institutional environment influences capital structure and debt maturity choices of firms in 39 developed and developing countries we find that a country s legal and tax system corruption and the preferences of capital suppliers explain a significant portion of the variation in leverage and debt maturity ratios specifically firms in more corrupt countries and those with weaker laws tend to use more debt especially short term debt explicit bankruptcy codes and deposit insurance are associated with higher leverage and more long term debt more debt is used in countries where there is a greater tax gain from leverage

human capital and the supply of religion abstract we study the role of labor inputs in religious attendance using data on oklahoma methodist congregations from 1961 to 2003 pastors play a significant role in church growth replacing a 25th percentile pastor with a 75th percentile one increases annual attendance growth by 3 a pastor s performance in his or her first church largely the result of random assignment predicts future performance suggesting a causal effect of pastors on growth the deployment of pastors by the church indicates efficient use of labor low performing pastors are more likely to be rotated or exit the sample and high performing pastors are moved to larger congregations

some empirical tests in the arbitrage pricing theory macro variables vs derived factors abstract this study investigates the ability of two models based on the arbitrage pricing theory apt to predict portfolio returns over the period 1971 1986 the difference between the two models lies in the factors used in the factor loading model flm the factors are produced by factor analysis and are thus unspecified in the macroeconomic variable model mvm the factors are defined as innovations in a set of macrovariables the two approaches are compared in several different ways observed differences in test results between the two models are generally relatively small given some attractive features of the mvm such as economically interpretable factors this finding is encouraging and suggests that factor analysis may be unnecessary in implementing the apt

does the u s economic policy uncertainty connect financial markets evidence from oil and commodity currencies abstract we provide novel insight to the emerging literature on the role of u s monetary policy as a driver of a global financial cycle by examining the possible causal effect of u s economic policy uncertainty on the connectedness of crude oil and currency markets using a sample of commodity currencies from advanced and emerging nations a battery of linear and nonlinear granger based causality tests indicate the presence of a causal relationship between economic policy uncertainty and the connectedness of oil and currency markets particularly at low frequencies and more significantly after the outburst of the global financial crisis while crude oil generally serves as a net transmitter of shocks to currencies across all frequency bands the spillover effects from oil are largely concentrated towards the g10 currencies of australian and new zealand dollar that are often used as investment currencies in global carry trade strategies overall our findings suggest the presence of a significant pass through effect of economic policy uncertainty via oil prices spilling over to the currency market in line with the emerging evidence that the monetary policy by the u s fed serves as a major driver of a global financial cycle that describes patterns in global capital flows credit activity and asset prices across financial markets

assessing the investment performance of swedish timberland a capital asset pricing model approach this paper evaluates the investment performance of swedish timberland during the last three decades using the capital asset pricing model capm results suggests that swedish timberland investments show diversification potential and can serve as a hedge against inflation furthermore the analysis suggests that the return on timberland is higher than on investment alternatives in the same risk class the results are in line with similar studies performed in other countries

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

inefficient foreign borrowing a dual and common agency perspective studying the implications of uncoordinated borrowing the paper first looks at whether and when countries borrow too much in the aggregate it then revisits the original sin debate analyzing whether and when equity portfolio investment international portfolio diversification domestic currency denomination and longer maturities enhance borrowing countries access to international lending the paper thereby relates a country s level and quality of access to international capital markets to a variety of institutional features such as the level of domestic savings their location the extent of control rights held by political authorities and the interests of dominant domestic political forces

the stochastic properties of term structure movements abstract the aim of this paper is to identify a stationary statistical model for treasury bill discount changes we find that the sample variance of discount changes are non stationary over short differencing intervals but stabilize as the intervals increase to quarterly or semi annual periods this result has important implications for pricing options and for analyzing the predictive properties of forward rates we show that the stochastic process structure leads to a downward revision in estimates of forward rate predictive power

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

dynamics of the trade balance and the terms of trade the j curve the authors provide a theoretical interpretation of two features of international data the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in terms of trade but positively correlated with past movements they document the same properties in a two country stochastic growth model in which trade fluctuations reflect in large part the dynamics of capital formation the authors find that their general equilibrium perspective is essential the relation between the trade balance and the terms of trade depends critically on the source of fluctuations copyright 1994 by american economic association

maturity mismatch and financial crises evidence from emerging market corporations substantial attention has been paid in recent years to the risk of maturity mismatch in emerging markets although this risk is microeconomic in nature the evidence advanced thus far has taken the form of macro correlations we evaluate this mechanism empirically at the micro level by using a database of over 1500 publicly traded firms from fifteen emerging markets with special focus on latin america and east asia while east asia corporates have tended to issue more debt at short maturities than their latin american counterparts we show that this is generally matched by greater holdings of liquid assets as a result the distribution of net shortterm exposure is remarkably similar across regions we attempt to measure the risk of such exposure by estimating at the firm level the eect on investment of short term exposure under capital account volatility for the whole sample and in both regions individually this eect is statistically zero contrary to the prediction of the maturity mismatch hypothesis this conclusion is robust to using a variety of dierent estimators alternative measures of capital flows and controls for devaluation eects and access to international capital

uncertainty capital flows and maturity mismatch abstract this paper explores a how the financial uncertainty generated by volatile international capital flows interacts with maturity mismatch on the balance sheets of nonfinancial firms to increase the volatility of output investment and total factor productivity tfp in emerging market economies i build a model of a small open economy in which financial frictions force firms to fund long term projects with short term debt in response to changes in the level of uncertainty regarding the availability of foreign borrowing firms adjust their long term investment contributing to the volatility of investment and output as well as generating endogenous fluctuations in aggregate productivity using data from a panel of major emerging markets i show that the volatility of portfolio debt flows negatively affects output by dampening investment while the volatility of equity flows which do not generate maturity mismatch has no effect consistent with the mechanism in the model the negative impact of capital flow volatility is larger at low levels of financial development and in industries with longer time to build lags my estimates imply that shocks to capital flow volatility account for one fifth of the excess output volatility of the emerging markets in my sample relative to a set of small open advanced economies

three factors interest rate differentials and stock groups motivated by the single period capital asset pricing model e g sharpe 33 for years research centered on the use of a single factor model where the single factor represented the return on the market portfolio subsequently multifactor models were derived in a generalized capm setting by sharpe 34 long 23 merton 25 etc as well as in the arbitrage pricing theoretic framework by ross 30 31 merton 25 in the context of continuous time intertemporal asset pricing derives what we might call a two factor model where the additional factor is a portfolio which is perfectly negatively correlated with changes in the risk free rate the general intertemporal asset pricing models developed by long 23 or more recently by cox ingersoll and ross 5 can also be interpreted as multifactor models on the empirical side numerous studies were finding systematic ex post dependence in the residuals from single factor models e g agmon and lessard 1 arnott 2 basu 4 estep 7 farrell 8 9 levy 20 rosenberg and

home bias at the fund level this paper presents new stylized facts on the distribution of the home bias at the fund level we find i a large heterogeneity in the degree of home bias across mutual funds ii a positive correlation between the size of funds and home bias and iii a positive correlation between the size of funds the number of foreign countries and the number of sectors in which they invest these facts constitute a challenge for existing theories this abstract was borrowed from another version of this item

sudden stops and output drops in recent financial crises and in recent theoretical studies of them abrupt declines in capital inflows or sudden stops have been linked with large drops in output do sudden stops cause output drops no according to a standard equilibrium model in which sudden stops are generated by an abrupt tightening of a country s collateral constraint on foreign borrowing in this model in fact sudden stops lead to output increases not decreases an examination of the quantitative effects of a well known sudden stop in mexico in the mid 1990s confirms that a drop in output accompanying a sudden stop cannot be accounted for by the sudden stop alone to generate an output drop during a financial crisis as other studies have done the model must include other economic frictions which have negative effects on output large enough to overwhelm the positive effect of the sudden stop this abstract was borrowed from another version of this item

volatility and growth credit constraints and the composition of investment abstract how does uncertainty and credit constraints affect the cyclical composition of investment and thereby volatility and growth this paper addresses this question within a model where firms engage in two types of investment a short term one and a long term one which contributes more to productivity growth because it takes longer to complete long term investment has a relatively less cyclical return but it also has a higher liquidity risk the first effect ensures that the share of long term investment to total investment is countercyclical when financial markets are perfect the second implies that this share may turn procyclical when firms face tight credit constraints a novel propagation mechanism thus emerges through its effect on the cyclical composition of investment tighter credit can lead to both higher volatility and lower mean growth evidence from a panel of countries provides support for the model s key predictions

the pricing of interest rate risk evidence from the stock market this paper addresses the issue of whether firms are required to pay an ex ante premium to investors for bearing the risk of interest rate changes a two factor apt model with the market and changes in the yield on long term government bonds as factors is employed the paper shows that empirically most of the interest sensitive stocks are in the utility industries and that there is reasonable evidence that the interest factor is priced in the sense of the apt several sources for the interest sensitivity are considered and regulatory lags are focused on as a likely candidate some firms exhibit ex post sensitivity in their stock returns to unanticipated changes in interest rates are these firms required to pay investors ex ante for bearing this risk of interest rate changes the framework for examining pricing of unanticipated interest rate changes is a two factor apt model with the market and changes in the yield on long term government bonds as factors the issue is whether the interest rate change premium is significant to study this the paper uses full information maximum likelihood fiml estimation on groups of twenty five individual firms with both cross equation constraints and withinequation nonlinear constraints on the parameters as mandated by the apt model whether the risk of unanticipated changes in interest rates is priced in the market is of particular interest with regard to regulated firms regulated firms especially electric utilities turn out to comprise the big majority of firms that are sensitive to unanticipated interest rate changes after some preliminary investigation the analysis focuses on electric utilities much empirical work on the apt relies on factor analysis e g roll and ross 30 bower bower and logue 5 use factor analysis in comparing the apt and the capm to explain utilities returns the present paper however uses observable variables at the macro level chan chen and hsieh cch 7 and chen roll and ross crr 8 also examine apt models with specific macroeconomic factors cch and crr use a traditional fama macbeth type of cross sectional estimation approach in the premia calculations rather than a fiml approach gibbons and stambaugh have applied fiml techniques to models using only the market as an explanatory variable gibbons 20 used a noniterative algorithm on portfolios of firms equivalent to a two step cross sectional approach stam

nudging farmers to use fertilizer theory and experimental evidence from kenya we model farmers as facing small fixed costs of purchasing fertil izer and assume some are stochastically present biased and not fully sophisticated about this bias such farmers may procrastinate post poning fertilizer purchases until later periods when they may be too impatient to purchase fertilizer consistent with the model many farmers in western kenya fail to take advantage of apparently profit able fertilizer investments but they do invest in response to small time limited discounts on the cost of acquiring fertilizer free deliv ery just after harvest calibration suggests that this policy can yield higher welfare than either laissez faire policies or heavy subsidies

international and domestic collateral constraints in a model of emerging market crises abstract we build a model of emerging markets crises which features two types of collateral constraints firms in a domestic economy have limited borrowing capacity from international investors they also have limited borrowing capacity with respect to each other we study how the presence and changes in these collateral constraints affect financial and real variables a binding international constraint in the aggregate leads to a sharp rise in interest rates and fire sales of domestic assets while limited domestic collateral can lead to wasted international collateral these two collateral constraints can interact in important ways the first is disintermediation a fire sale of domestic assets causes banks to fail in their function of reallocating resources across the economy leading to wasted international collateral the second is a dynamic effect we show that firms in an economy with limited domestic collateral and a binding international collateral constraint will not adequately precaution against adverse shocks increasing the severity of these shocks

fluctuations in uncertainty this review article tries to answer four questions i what are the stylized facts about uncertainty over time ii why does uncertainty vary iii do fluctuations in uncertainty matter and iv did higher uncertainty worsen the great recession of 2007 2009 on the first question both macro and micro uncertainty appears to rise sharply in recessions on the second question the types of exogenous shocks like wars financial panics and oil price jumps that cause recessions appear to directly increase uncertainty and uncertainty also appears to endogenously rise further during recessions on the third question the evidence suggests uncertainty is damaging for short run investment and hiring but there is some evidence it may stimulate longer run innovation finally in terms of the great recession the large jump in uncertainty in 2008 potentially accounted for about one third of the drop in gdp

do forest assets hedge inflation forest assets are commonly viewed as good hedges against inflation the view is based largely however on anecdotal evidence rather than empirical analysis this paper examines the historical relationship between forestry returns and inflation the results suggest that forests in the u s west and south have been superior hedges against higher than anticipated inflation forests in the northeast have been less effective inflation hedges the results also indicate that western and southern forests have been overvalued during periods of relatively high expected inflation markets for forests in the northeast however have been relatively efficient processors of inflation expectations

introduction to the economics of religion after a very long hiatus economists have begun again to study the relationship between economics and religion this article seeks to summarize and evaluate the principal themes and empirical findings that have appeared in some 200 recent papers on the economics of religion although some of the research concerns the economic consequences of religiosity most applies standard economic theory to the study of individual religious activity the characteristics of religious groups and the impact of regulation and competition on religious markets

the use of market data and accounting data in hedging against consumer price inflation this paper examines the use of alternative information sets in the construction of inflation hedge portfolios the study is motivated by consideration of the investor s problem in a multiperiod world several authors e g merton 1973 and breeden 1979 have shown that in a multiperiod setting optimal investment behavior will in general involve holding portfolios that can be used to hedge against changes in certain relevant states of nature one potentially relevant state of nature is the rate of inflation in general prices jones 1982 and elton gruber and rentzler 1983 in contrast to prior related research the empirical results indicate that it is possible to construct inflation hedge portfolios successfully if certain accounting information is used however portfolios constructed on the basis of historical security price information do not serve as effective hedges one contribution of this paper is to demonstrate the potential usefulness of accounting information to a price taking investor although financial statements play an important role in the setting of equilibrium

capital account liberalization financial development and industry growth a synthetic view this paper synthesizes studies analyzing the effects of capital account liberalization on industry growth while controlling for financial crises domestic financial development and the strength of institutions we find evidence that financial openness has positive effects on the growth of financially dependent industries although these growth enhancing effects evaporate during financial crises further analysis indicates that the positive effects of capital account liberalization are limited to countries with relatively well developed financial systems good accounting standards strong creditor rights and rule of law it suggests that countries must reach a certain threshold in terms of institutional and economic development before they can expect to benefit from capital account liberalization

aid dutch disease and manufacturing growth abstract we examine the effects of aid on the growth of manufacturing using a methodology that exploits the variation within countries and across manufacturing sectors and corrects for possible reverse causality we find that aid inflows have systematic adverse effects on a country s competitiveness as reflected in the lower relative growth rate of exportable industries we provide some evidence suggesting that the channel for these effects is the real exchange rate appreciation caused by aid inflows we conjecture that this may explain in part why it is hard to find robust evidence that foreign aid helps countries grow

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

arbitrage pricing theory and utility stock returns this paper presents some new evidence that arbitrage pricing theory may lead to different and better estimates of expected return than the capital asset pricing model particularly in the case of utility stock returns results for monthly portfolio returns for 1971 1979 lead to the conclusion that regulators should not adopt the single factor risk approach of the capm as the principal measure of risk but give greater weight to apt whose multiple factors provide a better indication of asset risk and a better estimate of expected return notwithstanding initial skepticism and recent challenges the capital asset pricing model capm has been used to develop project screening rates value companies measure the impact of policy change on risk and construct portfolios recently the federal energy regulatory commission ferc proposed it as the principal measure of risk for the electric utilities it regulates it would be ironic for acceptance of capm by policymakers to occur just as arbitrage pricing theory apt threatens to replace it as an explanation of the relationship between return and risk and it would be a pity if ferc were to adopt the single risk factor approach of capm when it could be demonstrated that the multiple factors of apt provide a better indication of asset risk and a better estimate of expected return this paper presents some new evidence that apt may lead to different and better estimates of expected return than capm and that it may be more helpful to policymakers as a result we describe capm and apt note work done by others show how estimates of required returns for utilities developed by applying each model may differ and finally report the evidence that convinces us that if one model is to be relied upon for policy purposes apt would be the better choice

volatility and development why is gdp growth so much more volatile in poor countries than in rich ones we identify four possible reasons i poor countries specialize in more volatile sectors ii poor countries specialize in fewer sectors iii poor countries experience more frequent and more severe aggregate shocks e g from macroeconomic policy and iv poor countries macroeconomic fluctuations are more highly correlated with the shocks of the sectors they specialize in we show how to decompose volatility into these four sources quantify their contribution to aggregate volatility and study how they relate to the stage of development we document the following regularities first as countries develop their productive structure moves from more volatile to less volatile sectors second the level of specialization declines with development at early stages and slowly increases at later stages of development third the volatility of country specific macroeconomic shocks falls with development fourth the covariance between sector specific and country specific shocks does not vary systematically with the level of development we argue that many theories linking volatility and development are not consistent with these findings and suggest new directions for future theoretical work

returns to farm real estate revisited barry s research on farm real estate returns suggests that when farm assets are viewed as a part of the nation s wealth portfolio returns are not persistently low as is commonly asserted in policy debates this paper extends barry s research by explicitly accounting for the effects of uncertain inflation using a broader market proxy and lengthening the sample period the results suggest farm real estate offers only slight not substantial premiums above those for systematic risk contributes little systematic risk to a well diversified portfolio and exhibits substantial risk due to uncertain inflation

individual s religiosity enhances trust latin american evidence for the puzzle this paper explores the effect of religious observance and affiliation to the dominant religion catholicism on trust in institutions towards others and market attitudes the analysis is performed using a latin american database of twenty thousand respondents from 2004 by means of ordered probit models the most interesting results are i trust toward others is positively correlated with religious observance and with catholic affiliation ii there is a positive correlation between

financial development and openness evidence from panel data abstract this paper addresses the empirical question of whether trade and financial openness can help explain the recent pace in financial development as well as its variation across countries in recent years utilising annual data from developing and industrialised countries and dynamic panel estimation techniques we provide evidence which suggests that both types of openness are statistically significant determinants of banking sector development our findings reveal that the marginal effects of trade financial openness are negatively related to the degree of financial trade openness indicating that relatively closed economies stand to benefit most from opening up their trade and or capital accounts although these economies may be able to accomplish more by taking steps to open both their trade and capital accounts opening up one without the other could still generate gains in terms of banking sector development thus our findings provide only partial support to the well known rajan and zingales hypothesis which stipulates that both types of openness are necessary for financial development to take place