optimal liberalization of financial markets abstract as financial markets become completely liberalized countries gain from improved risk sharing but less wealthy countries can no longer profit from borrowing abroad at the lower rate and reinvesting at home at the higher rate with decreasing rather than constant returns to capital the gain from risk sharing is more likely to dominate the loss of the difference between the borrowing rate abroad and the decreasing reinvestment rate at home complete liberalization is likely to be optimal for less wealthy countries unless their labor endowment is large their productivity is large or holdings by foreigners are small as in china

the market reaction to international cross listings evidence from depositary receipts abstract this paper examines the stock price impact of international dual listings the sample consists of 181 firms from 35 countries that instituted their first depositary receipt program over the period 1985 1995 the market reaction to a depositary receipt program is larger in magnitude and more pervasive than previously reported the stock price reaction is related to choice of exchange geographical location i e emerging or developed markets and avenues for raising equity capital i e public versus private offerings

a joint test of market segmentation and exchange risk factor in international capital market market segmentation and exchange risk are two main factors that distinguish international financing and investment decisions from domestic ones existing studies of market segmentation have been conducted within a framework in which exchange risk is not explicitly recognized this paper performs a joint test of market segmentation and exchange risk pricing based on individual stock data from seven major countries outside of the u s for the period january 1981 to december 1989 the theoretical framework used is a multifactor model with domestic and world market factors and an exchange risk factor the maximum likelihood method is used to estimate risk premia and factor analysis is used to provide additional evidence on the pricing of risk factors the results indicate that a the factor structure of asset returns is internationally heterogeneous b many national capital markets can be described as partially segmented rather than the polar cases of complete segmentation or integration and c exchange risk is a significant factor affecting asset returns in addition to the domestic and world market risk factors

public acceptance for environmental taxes self interest environmental and distributional concerns abstract while strongly recommended by economists it has often been politically difficult to impose taxes on externalities there is a substantial literature on public attitudes towards environmental taxes there has however been few comprehensive attempts to understand attitudes towards environmental taxes the main research question in this paper is which factors influence support for fuel taxation we propose a model of attitudes towards fuel taxation and test this model as well as more specific hypotheses using data from a representative survey of the adult norwegian population our results suggest that support for fuel taxation is best predicted by beliefs about environmental consequences followed by beliefs about consequences to others beliefs about consequences to self self interest is the factor that explains the least variation in support for fuel taxation the academically interesting result that support cannot be well explained without capturing a broad range of motivational factors is also highly policy relevant it implies that there is no magic formula for increasing public support for environmental taxes there are however some issues which can be addressed trust in how well the government spends the revenue and the perception that taxation does very little to change behaviour and thus to reduce environmental problems

home bias in equity portfolios inflation hedging and international capital market equilibrium we test whether the home bias in equity portfolios is caused by investors trying to hedge inflation risk the empirical evidence is consistent with this motive only if investors have very high levels of risk tolerance and equity returns are negatively correlated with domestic inflation we then develop a model of international portfolio choice and equity market equilibrium that integrates inflation risk and deadweight costs using this model we estimate the levels of costs required to generate the observed home bias in portfolios consistent with different levels of risk aversion for a level of risk aversion consistent with standard estimates of the domestic equity market risk premium these costs are about a few percent per annum greater than observable costs such as withholding taxes thus the home bias cannot be explained by either inflation hedging or direct observable costs of international investment unless investors have very low levels of risk aversion article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

further evidence on closed end country fund prices and international capital flows using cointegration analysis i establish a long run relationship between country fund premiums and international capital flows in six out of 10 emerging markets and in two out of seven developed markets examined this relationship is explored to derive an intuitive measure of capital market segmentation that accounts for investment barriers and does not rely on a specific asset pricing model i find that most emerging markets are segmented but some exhibit a clear trend toward integration whereas most developed countries exhibit no evidence of segmentation the segmentation measure reveals that the process toward integration is gradual and can be reversed

stock prices and monetary variables the international evidence according to one explanation of the observed negative relation between u s stock returns and inflation a drop in stock prices signals a drop in economic activity which leads to a reduction in government revenues an increase in the budget deficit and an increase in the expected inflation rate the latter may or may not be accompanied by an increase in real interest rates depending upon whether or not the government borrows to finance the budget deficit evidence from nine major world stock markets seems to support this theory stock returns exhibit a strong negative correlation with changes in expected inflation as proxied by the short term interest rate a much weaker correlation with the level of inflation there also appears to be a significant although small real rate effect especially in those countries such as japan germany and switzerland that finance an unexpected deficit by borrowing other internationally oriented monetary variables appear to have little influence on equity returns despite increased international investing and the increase in exchange rate volatility since the advent of flexible rates changes in real exchange rates and in real interest rate differentials are only weakly correlated with stock returns and their influence is dwarfed by the effects of domestic interest rate changes

an intertemporal model of international capital market segmentation this paper develops an intertemporal model of international capital market segmentation within the model under various forms of segmentation integration the equilibrium asset prices and allocations the risk free interest rate and the intertemporal consumption behavior and welfares of two countries are derived and compared it is shown that the equilibrium interest rate is increased on integration and that integrating markets may be significantly welfare decreasing for one of the countries conditions that may lead to a decrease in welfare are investigated the conclusions as to the effects of segmentation on asset prices in the mean variance model of the existing finance segmentation literature are also shown to break down in an intertemporal model

international price discovery in finnish stock index futures and cash markets abstract this paper investigates empirically how the information of the world s stock markets is reflected in the thin finnish stock index futures and cash markets the world wide returns seem to have a significant leading ability for predicting finnish stock index futures returns however this kind of causal relation is not observed between the world wide and stock market returns the finnish stock index futures returns then show significant granger causality with finnish stock market returns the stock market being the lagging one the relationship is improved by allowing the association between markets to be different for positive and negative returns the findings of this study suggest short selling restrictions and other market frictions to be a significant factor leading to a delay in the pricing process in the stock market

foreign equity investment restrictions capital flight and shareholder wealth maximization theory and evidence this article provides a theory of foreign equity investment restrictions we consider a model where the demand function for domestic shares differs between domestic and foreign investors because of deadweight costs in holding domestic and foreign securities that depend on the country of residence of investors we show that domestic entrepreneurs maximize firm value by discriminating between domestic and foreign investors the model implies that countries benefitting from capital flight have binding ownership restrictions such that foreign investors pay a higher price for shares than domestic investors the empirical implications of this theory are supported by evidence from switzerland article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

equity markets and personal taxation the ex dividend day behaviour of finnish stock prices abstract this paper analyzes the ex dividend day behaviour of stock prices in the finnish stock market the tax structure in finland is strikingly similar to the new tax structure in the u s which was for the first time in effect during the fiscal year 1987 the results in this paper may thus also illuminate the ex dividend day behaviour in the u s stock markets under the new tax law our empirical data show that the average drop in the stock prices on their ex dividend days has been 90 of the amount of the dividend during the years of 1974 to 1985 this is shown to be consistent with the tax explanation taking into account the finnish tax laws it is especially shown that the marginal seller on the ex dividend days is an individual investor with a marginal tax rate of approximately 50

on the effects of barriers to international investment a simple model is presented in which it is costly for domestic investors to hold foreign assets the implications of the model for the composition of optimal portfolios at home and abroad are derived it is shown that all foreign assets with a beta larger than some beta plot on either one of two security market lines some foreign assets with a beta smaller than are not held by domestic investors even if their expected return is increased slightly while it is obviously not true that asset markets are completely segmented between countries there is evidence of barriers to international investment although reality seems to lie in that grey area between complete segmentation and no segmentation at all most international asset pricing models are concerned with the extreme case of no barriers to international investment no effort seems to have been made to study the effect on portfolio choice of such barriers which make it costly to hold foreign securities as opposed to domestic securities but which do not in general render international diversification so onerous that investors avoid foreign securities completely casual empiricism suggests that models without barriers to international investment should be suspect those models cannot explain why it appears that in every country investors on average hold more domestic securities than would be required if they held the world market portfolio 2 this paper constructs a model of international asset pricing in which there is a cost associated with holding either long or short risky foreign securities for the sake of simplicity in most of the paper we assume that while domestic investors face barriers to international investment foreign investors face no such barriers it turns out that nothing significant is lost with such an assumption the main conclusions of this paper for the case in which foreign investors face no barriers to international investment are 1 in the presence of barriers to international investment some risky foreign

explaining share price disparity with parameter uncertainty evidence from chinese a and h shares abstract the price disparity between the a and h share markets for dual listed firms in china is one of the most intriguing puzzles in the mainland and hong kong financial markets in this paper we revisit this price disparity puzzle using the channel of parameter uncertainty in the presence of information asymmetry and market segmentation investors have different views on a firm s asset volatility and hence different valuations of the same reference firm we estimate a structural model for equity pricing using a bayesian approach in which the uncertainty of investor model parameters is represented by the posterior standard deviation of the firm s asset volatility our regression analysis shows that in addition to other market based and macro factors parameter uncertainty explains variations in price disparity

a dynamic equilibrium model of imperfectly integrated financial markets abstract this paper analyzes the determination of global equity portfolios and stock returns in the context of imperfectly integrated stock markets we consider a continuous time two country endowment economy where the level of financial integration is captured by a proportional tax on foreign dividends despite the investor heterogeneity induced by this tax we obtain approximate closed form expressions for asset prices and characterize equity holdings and the joint process followed by country level stock returns in equilibrium our model is consistent with a broad range of empirical findings on international financial integration when the endogenous cross country return correlation is high small frictions in equity markets can generate a substantial home bias in portfolios in the baseline version of our model the cross country return correlation is driven by the fundamental correlation and portfolio rebalancing in a two good extension of the model the adjustment of relative good prices can generate a high stock return correlation even for a low level of fundamental correlation magnifying the impact of the financial friction on portfolios we assess the quantitative performance of the model in a calibration exercise using data from g7 countries

intraday market price integration for shares cross listed internationally this study investigates market price integration by testing per share trade execution price or cost tep c differentials for matched intraday trades for a sample of canadian shares cross listed in the u s the tse trade price advantage over the entire time period changed significantly after both the tse s own minimum quotation increment reduction and that of its u s competitors we show that the differential tep c is equivalent to the international effective spread differential and that market quality comparisons which benchmark using the national instead of the international bbo need to compare both national effective half spread and midspread differences our cross sectional regression results support our predictions that tep c differentials can be explained by differences in national midspreads and by ex ante proxies of national effective half spreads the tep c differentials vary inversely with increasing levels of our measure of signed market nonfragmentation

integration vs segmentation in the canadian stock market this paper examines the issue of integration versus segmentation of the canadian equity market relative to a global north american market we compare the international and domestic versions of the capm and find that integration or the mean variance efficiency of the global market index is rejected by the data segmentation is the preferred model based on a maximum likelihood procedure correcting for thin trading we further divide the sample into securities that are interlisted in canada and the u s and those that are not integration is rejected for both groups which indicates that the source of segmentation can be traced to legal barriers based on the nationality of issuing firms empirical studies of international capital markets have left the issue of segmentation versus integration largely unresolved yet the question of national or international pricing of assets has crucial implications for financial decisions if national stock markets are segmented then international portfolios should display superior risk adjusted performance because some of the priced domestic systematic risk is diversifiable also with segmentation many irrelevance propositions for corporate financial strategy break down home firms face optimal hedging decisions as well as optimal foreign versus home borrowing decisions finally criteria for capital budgeting decisions will be quite different under national and international pricing the purpose of this paper is to shed some light on this integration versus segmentation question for the canadian equity market vis a vis a global north american market in this paper integration is defined2 as a situation where investors earn the same risk adjusted expected return on similar financial instruments in different national markets the key problem of course is the pricing

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

the pricing of emerging market country funds this paper provides an analysis of the equilibrium pricing of closed end country funds cecfs from emerging and nascent markets under the condition of segmented capital markets where an investment company acquires a set of eligible securities from the home country to form a cecf and issues shares to the residents of the host country the key findings are first a country fund will trade at its net asset value zero premium mimicking an open end status if the fund acquires as much of eligible securities as the differential substitution demand for them between the host and home country investors the differential substitution demand is shown to represent the equilibrium demand for eligible securities by the host country investors when they do not face supply restrictions second the fund will command a higher premium the more close a substitute the fund is for the market portfolio of the home country and the more risk averse the home country investors are collectively third the basic functional form of the fund premium is robust to the inclusion of freely tradable securities however the fund premium would additionally depend on the spanning ability of freely tradable securities

the only game in town stock price consequences of local bias abstract theory suggests that in the presence of local bias the price of a stock should be decreasing in the ratio of the aggregate book value of firms in its region to the aggregate risk tolerance of investors in its region using data on u s states and census regions we find clear cut support for this proposition most of the variation in the ratio of interest comes from differences across regions in aggregate book value per capita regions with low population density e g the deep south are home to relatively few firms per capita which leads to higher stock prices via an only game in town effect

globalization welfare regimes and social protection expenditures in western and eastern european countries this paper analyzes the effects of globalization on social protection expenditures in european countries the particular focus is on a the eastern european countries and b on differences in globalization effects between welfare regimes we find evidence in favor of the compensation hypothesis in western europe which is driven by the conservative welfare regime outweighing the efficiency effect of globalization in the social democratic welfare regime in eastern european countries the efficiency effect is predominant no globalization effect is found for the liberal and the southern welfare regimes

price differences between equity classes corporate control foreign ownership or liquidity abstract this paper is the first comprehensive study of price differences for dual class equity at the oslo stock exchange it analyzes the relative importance of corporate control foreign ownership restrictions and stock market liquidity for the price differences the norwegian market has the peculiar feature that in part of the sample period non voting shares were trading at a premium to voting shares i e what is usually termed the voting premium was negative this result can be rationalized by restrictions on foreign ownership in the later part of the period with no regulatory restrictions on foreign ownership the voting premium is positive and related to corporate governance and liquidity

international investment restrictions and closed end country fund prices some closed end country funds trade at large premiums relative to their net asset values this paper examines whether international investment restrictions raise country fund price net asset value ratios by segmenting international capital markets we test whether a relation exists between announcements of changes in investment restrictions and changes in these ratios using weekly data from may 1981 to january 1989 the results provide evidence that some foreign markets are at least partially segmented from the u s capital market

a choice experiment on fuel taxation and earmarking in norway abstract pigouvian taxes are efficient but unpopular among voters and hence often politically infeasible earmarking of revenues has been widely reported to increase public support for taxes but earmarking is generally not the most efficient use of the revenues this trade off between efficiency and political feasibility is the motivation for our primary research objective to quantify the effect of earmarking on support for fuel tax rises our secondary research objective is to investigate why earmarking increases support using data from a representative sample of the norwegian voter population n 1147 we estimate models of voter preferences for fuel taxes using logistic regression models our results show that in the absence of earmarking the majority of voters would like to reduce fuel taxes but earmarking the revenues for environmental measures has a substantial effect on voter support for fuel tax increases garnering a majority for increases of up to 15 above present levels further analysis indicates that a prime reason why earmarking for environmental measures is popular is that it increases the perceived environmental effectiveness of the tax and hence its legitimacy as an environmental rather than a fiscal policy instrument

asset pricing in partially segmented markets evidence from the finnish market this paper analyzes asset pricing in a partially segmented market where citizens of a small country are allowed to hold only their domestic securities whereas the rest of the investors foreigners are essentially allowed to hold all securities in this market setting it may occur that the citizens of the small country are willing to pay less for their domestic securities than are the foreign investors the paper derives equilibrium required rates of return for different investors in this market setting which perfectly occurred in finland and tests this equilibrium model using data from the finnish stock market empirical results are consistent with the hypotheses derived from the model several studies see e g solnik 1974a and grauer and hakansson 1987 have shown that investors should diversify internationally as by so doing they can reduce the risk of their portfolio without lowering the expected return this implies that if the citizens of a certain country are by legal restrictions prohibited from holding foreign securities they may require a higher rate of return on the domestic securities than the foreign investors do this may happen because the domestic investors cannot diversify away the specific country risk in the same way that the foreign investors can thus if we could observe the prices which the foreign and domestic investors are willing to pay for these domestic securities we would expect them to differ because of this diversification effect the finnish law prohibited finnish investors from investing in foreign securities until 1986 while simultaneously allowing foreign investors to own up to 20 of the shares of any finnish company moreover since 1984 the helsinki stock exchange hse has separately quoted the prices for the unrestricted shares which can be owned both by foreign and domestic investors and for the restricted shares owned solely by domestic investors thus the market setting depicted in the previous paragraph occurred perfectly in finland during the years 1984 and 1985 in this paper our objective is to develop and test an asset pricing model which takes into account the legal restrictions in the finnish stock market in section i we specify the market structure in the finnish stock market in more detail by explaining the relevant legal restrictions affecting the market we also present some descriptive statistics on the prices of the restricted and the unrestricted on

the efficiency of the finnish market for right issues abstract this paper analyzes the efficiency of the finnish market for right issues the rights traded on the helsinki stock exchange hse are similar instruments to warrants with some special features attached to them the paper first derives appropriate arbitrage conditions for these rights which must be satisfied in informationally efficient markets and then examines these conditions using both ex post and ex ante test procedures the ex post tests which jointly examine market efficiency and synchroneity of the rights and stock market show a staggering amount of violations against the arbitrage bounds however the ex ante tests reveal that high transaction costs prevent normal investors from benefitting from these violations stockbrokers themselves however seem to be able to earn arbitrage profits in the rights market

partially segmented international capital markets and international capital budgeting abstract evidence suggests that international capital markets are neither fully integrated nor completely segmented there is however currently no general method available for computing the required return on corporate investments in such capital markets this paper uses a model of partially integrated international capital markets to derive optimal international capital budgeting rules we show how capital budgeting rules depend on the level of investor costs to cross border investment both directly and also indirectly through the portfolio specialization they induce we explain how required returns differ for different companies raising capital in such markets and how these costs of capital may be estimated we also explain how these differences in required returns can be consistent with general equilibrium and the effect they have on incentives for foreign direct investment

the continuing search for a popular tax for the next few years perhaps for a longer time federal tax policy will be inseparably intertwined with deficit reduction policy as a result tax decisions will be more closely related to spending decisions and attention will shift to new kinds of taxes for decades federal tax policy debates have been quite separate from debates over what these taxes are supposed to finance federal tax controversy has focused heavily on the major general revenue sources the individual and corporate income taxes economists have analyzed the effects of these levies on economic behavior and on the distribution of income and this analysis has played a considerable role in policy formulation the substantial reduction in marginal tax rates as well as base broadening indexing and changes in the treatment of depreciation and consumer interest were greatly influenced by the views of economists the frequency of recent changes in the income tax rules capped by the surprisingly comprehensive tax reform legislation of 1986 have left both politicians and tax reformers with little appetite for further tinkering with the income taxes moreover the continuing large deficits in the federal budget only partially offset by growing surpluses in the social security trust fund have forced policymakers to focus on a new aspect of an old problem how to get citizens to want less from their federal government or be willing to pay more for it

barriers to portfolio investments in emerging stock markets the authors examine to what extent features of the international tax system and indicators of transaction costs affect the required rates of return on emerging stock markets they show that the capital gains withholding tax levied on foreign portfolio investors increases required pre tax rates of return as countries generally do not index their capital gains taxes it follows that inflation increases the capital gains tax base as well as the required rate of return on equity dividend withholding taxes instead appear not to increase the required pre tax equity returns significantly the differing results for capital gains and dividend taxes reflect the fact that foreign investors generally can receive domestic tax credits only for foreign withholding taxes paid on dividends the return on equity is part of the issuing firm s cost of capital so capital gains withholding taxes imposed on nonresidents increase the cost of capital for domestic firms and discourage physical investment private investment levels have tended to be low in developing countries in the 1980 s the cost of equity finance in developing countries has gained in importance in the last decade as these countries access to international lending capital has been limited during most of the decade what do these findings imply for the design of tax policy in relation to foreign portfolio investment in developing countries the existence of foreign tax credits for dividend taxes paid suggest that a country should tax capital gains more lightly than repatriated dividends as do greece pakistan portugal and venezuela each of these countries has positive dividend withholding taxes but no capital gains taxes imposed on non residents colombia and india do the exact opposite they tax capital gains far more heavily than dividends despite what appears optimal the trend in developing countries is toward lower dividend withholding taxes with little change in the average level of capital gains taxation it appears desirable for developing countries to index their capital gains taxes to prevent them from being higher than anticipated

risk reduction by diversification in the nordic stock markets empirical examination of the ex post potential gains of risk reduction through international portfolio diversification started with grubel 1968 levy and sarnat 1970 solnik 1974 and lessard 1974 in their survey of international finance adler and dumas 1983 p 938 summed up the results the potential for international diversification to reduce risk seems unquestionable in the wake of increasing liberalization for international portfolio investment more recent contributions include jorion 1985 1989 grauer and hakansson 1987 and levy and lerman 1988 the results of the pioneers have been corroborated by contemporary research and according to jorion 1989 p 54 international diversification extolled by grubel as early as 1968 seems to have delivered on its promises despite the long tradition of studies in international portfolio diversification there has been no such work regarding the nordic markets this paper fills the gap through an analysis of potential gains from international diversification for different nordic investors danish finnish norwegian and swedish if they invest in all the nordic equity markets until the beginning of the 1980s nordic investors particularly in finland and sweden faced legal restrictions on investment abroad see nordiska radet 1987 adler and dumas 1983 have pointed out that such restrictions would lead to partially or fully segmented markets and hietala 1989 has shown the existence of premiums in the finnish stock market in our study we do not make any direct test of whether the nordic equity markets have been segmented or integrated but our results might provide some indirect evidence the nordic countries are generally viewed as fairly homogeneous from a social political and economic point of view while international diversifi

interdependencies among the nordic and u s stock markets using the concept of granger causality interdependencies among the stock market indices for four nordic countries and the u s are examined the vector autoregressive model results indicate that the u s market affected only the danish but not the norwegian finnish or swedish markets the swedish market was causally prior to both the norwegian and finnish markets the norwegian danish and finnish markets did not granger cause any other market the results indicate that the nordic stock markets are less than fully integrated

foreign currency denominated debt an empirical examination we examine the determinants of debt issuance in 10 major currencies by large u s firms using the fraction of foreign subsidiaries and tests exploiting the disaggregated nature of our data we find strong evidence that firms issue foreign currency debt to hedge their exposure both at the aggregate and the individual currency levels we also find some evidence that firms choose currencies in which information asymmetry between domestic and foreign investors is low we find no evidence that tax arbitrage liquidity of underlying debt markets or legal regimes influence the decision to issue debt in foreign currency

do you not like pigou or do you not understand him tax aversion and revenue recycling in the lab tax aversion reduces the likelihood that price rationing can be a politically viable tool for environmental protection we examine the case of the classic pigouvian tax to control a negative externality and consider how recycling the revenues labeling of the tax and information about its purpose affects the support for taxation we test the support for taxation within a single price market experiment in which purchases by some buyers impose external costs on others observing behavior consistent with tax aversion we also find that recycling the revenues to more narrowly targeted groups seems to increase support for taxation in the absence of narrow revenue recycling labeling a pigouvian instrument as a tax may significantly lower the likelihood of voter support

long and short term dynamic causal transmission amongst international stock markets abstract this paper investigates the dynamic causal linkages amongst nine major international stock price indexes in order to gauge the causal transmission patterns we employ very recent methods of i vector error correction modeling and ii level var modeling with possibly integrated and cointegrated processes advocated by i toda and phillips econometrica 61 1993 1367 and ii toda and yamamoto j econometrics 66 1995 225 respectively the paper illustrates how such methods may be appropriately augmented in a compatible fashion to unearth previously unfounded linkage properties inherent amongst a system of stock price indexes in particular we demonstrate that previous research by using ordinary difference vars ignored an important component of linkages displayed purely over the long run this untapped evidence essentially provides robust and very useful information to international financial analysts and investors at a substantive level results of this study tend to support the contention offered by several studies in the literature of significant interdependencies between the established oecd and the asian markets and also the leadership of the us and uk markets over the short and long run the levels var however illustrate the japanese market s influence as an additional long run leader findings seem to be plausible given that these three markets us uk and japan have consistently contributed over 75 of global stock market capitalization over the major part of the sample under consideration at a methodological level this analysis also provides a primer for the wealth of applied financial econometric research focusing on dynamic causal inference which involve systems containing possibly integrated and cointegrated processes

government as a discriminating monopolist in the financial market the case of china abstract we show that the many unusual features of china s financial markets are consistent with a government choosing regulations to maximize a standard type of social welfare function under certain conditions these regulations are equivalent to imposing explicit taxes on business and interest income yet should be much easier to enforce the observed implicit tax rates are broadly in line with those observed in other countries the theory also forecasts however that china will face increasing incentives over time to shift to explicit taxes

international investment barriers in general equilibrium abstract this paper examines quantitative international investment barriers in a general equilibrium model the constraints force otherwise similar agents to hold different portfolios of risky assets we show that this induces lending and borrowing this in turn instroduces a hedging motive against shifts in the interest rate the factors affecting agents portfolio choice the allocation of capital across countries as well as the interest rate are charcterized we conjure that the equilibrium world interest rate will be lower in the constrained situations than with free capital flows

gains from international diversification 1968 85 returns on portfolios of stocks and bonds this paper applies the multi period investment model to a universe of international securities on the basis of the simple probability assessment approach our principal findings are 1 the gains from including non u s asset categories in the universe were remarkably large in some cases statistically significant especially for the highly risk averse strategies 2 the gains from removing the no leverage constraint were more substantial than they were in the absence of non u s securities and 3 there is strong evidence of market segmentation in that the optimal levels of investment in u s securities were mostly zero in the presence of the non u s asset categories