characterizing cross country consumption correlations general equilibrium models of international fluctuations that assume complete asset markets predict that consumption will be highly correlated across countries while the data display correlations that are rather low it has become common to characterize this empirical regularity by noting that cross country consumption correlations tend to be lower than corresponding output correlations this note reconsiders that charac terization and demonstrates that it is not particularly robust it also documents a related regularity that is more pervasive consumption fluctuations are more highly correlated with domestic production than with world output this provides an alternative standard for evaluating models of international fluctuations

unionization and input flexibility in u s manufacturing 1973 1996 input flexibility as measured by the ability of firms to vary input demand in the face of changes in input prices is an important dimension of labor market flexibility using a new dataset the authors analyze the impact of unionization on input flexibility in u s manufacturing from 1973 to 1996 a period in which production was arguably becoming more flexible due to deep changes in the u s industrial relations system and in the broad macroeconomic environment the authors quantify the effects of unionization on input flexibility by estimating elasticities of substitution between a broad range of labor and non labor inputs controlling for unionization the pattern that emerges is more complex than that suggested by other research in particular low unionization apparently is associated with greater flexibility in the use of labor inputs but less flexibility in the use of non labor inputs

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

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

what macroeconomic risks are not shared by international investors adopting an asset market view of international risk sharing we identify various sources of macroeconomic risk faced by international investors using a structural vector autoregression model we find that most of the risks of exogenous financial market shocks are shared by international investors through the existing asset markets however other macroeconomic risks such as those associatedwith exogenousshocks to consumption growth inflationandmonetarypolicies arenot fullysharedacrosscountries this finding helps us understand the apparently contradicting perceptions of international risk sharing generated by the analysis of asset market returns versus that of aggregate consumption growth across countries jel codes e44 f31 g12

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

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

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

the structure of labor costs with overtime work in u s jobs the author analyzes employment contract and labor demand models of the fair labor standards act overtime pay regulation to determine their effects on employers labor costs using national compensation survey data to obtain a representative sample of u s private industry jobs he assesses each model s ability to predict either the adjustment of wage rates if overtime is warranted the employment contract model or the probability of using overtime to meet labor demands the labor demand model using quasi fixed employment costs as independent variables allows for a better accounting of labor demand he finds that lower wages go hand in hand with jobs requiring more overtime work which indicates that overtime pay regulation influences the structure of compensation

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

unionism mio the cyclical behavior of the labor tv rket in u s manufacturing t he traditional view of market dynamics implies that when demand varies intertemporal variation in quantities exchanged increases as prices become less flexible this reasoning leads to the proposition that wage and price rigidities are important contributors to cyclical fluctuations in output fischer 1977a and gray 1978 based formal macro models on this principle although this view is common it has little empirical support the coexistence of union and nonunion establishments engaged in similar activities contains potential for testing its merits economists have long maintained that in the short run union wages are less flexible than nonunion wages dunlop 1950 rees 1951 this difference should produce larger fluctuations in union employment and hours empirical studies have generally supported the union wage rigidity hypothesis lewis 1963 ashenfelter johnson and pencavel 1972 and hendricks 1981 2 but until recently lack of data precluded analysis of hours and employment definitive answers to the important questions concerning unions influence on cyclical behavior require yet unavailable information matching the behavior of firms and characteristics of workers but data from modem surveys have allowed considerable progress nevertheless it remains a challenge to determine how much of differences observed in the stability of labor utilization are attributable to differences in the stability of demand medoff 1979 and raisian 1979 report that cyclical variation of employment and hours is indeed greater for union labor but despite attempts to allay suspicion that their finding arises primarily from concentration of union members in cyclically sensitive industries both studies leave room for doubt raisian estimated functions relating an individual s wage and weeks worked in a year to a proxy for excess demand that year s unemployment rate in the worker s industry the technique is attractive but raisian s data included workers from the entire economy and the industries were broad aggregates thus differences in the union and nonunion groups compositions may play a large role medoff who confined his study to production workers in manufacturing and used data allowing finer partitions investigated the importance of composition more thoroughly but he did not estimate relationships between adjustments in employment or hours and a measure of demand furthermore his focus was principally on the composition of manhours adjustments rather than their size in this paper i combine the strongest features of the medoff and raisian studies in further examination of the influence of unionism on cyclical fluctuations using current population surveys u s department of commerce 1978 from may of 1973 75 my analysis covers production workers in manufacturing during a period of rising inflation and unemployment the heart of the analysis is a measure of residual employment that quantifies by three digit industry and year shortrun excess demand for labor i construct this variable from employment time series and use it to estimate union nonunion differences in the cyclical responses of unemployment hourly wage rates and hours worked the results are consistent with the view that increasing rigidity in wages amplifies cyclical fluctuations in the utilization of labor the wage regressions add further to the literature s already strong support for the union wage rigidity hypothesis the employment status and hours regressions imply that the sensitivities of employment received for publication august 12 1981 revision accepted for publication february 11 1983 federal reserve bank of dallas this paper is based on my ph d dissertation which was completed at ucla with financial assistance from the rand corporation and the department of labor comments by referees and by participants of labor workshops at ucla and the university of chicago as well as the computation assistance of brian mckee are gratefully acknowledged i am responsible for any remaining errors the views expressed should not be attributed to the federal reserve bank of dallas or the federal reserve system one study is gordon 1982 who concludes page 41 that macroeconomic instability in the united states has been aggravated by the unusually sluggish behavior of nominal wages in the postwar era 2see also johnson 1975 parsley 1980 and moore and raisian 1980

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

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

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

hours of work and trade unionism this article is concerned with hours worked per employee in unionized labor markets first the determination of hours is examined in the context of various bargaining models and in the process these models are nested in a general framework then cross section and time series data are drawn on to quantify the effects of unionism on hours worked the time series data from 1920 to 1980 imply a negative impact of unionism on full time hours while cross section data for 1978 suggest some notable differences in both the direction and the magnitude of this impact across occupations and industries

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

overtime pay overtime hours and labor unions this article analyzes the effect of labor unions on overtime compensation and overtime hours estimates from may 1985 current population survey data indicate that unionization increases the prevalence of premium pay for overtime and reduces the incidence and extent of overtime hours along with the finding of previous research that unionized workers are more susceptible to temporary layoffs these results are consistent with a model in which unions use overtime pay to stabilize working hours and expand membership

did lower unionization in the united states result in more flexible industries do unions really impede manufacturers output flexibility if so in what ways the authors propose a methodology for quantifying george stigler s concept of output flexibility and for decomposing the effects of unionization on average cost differences between union and non union plants using a recently compiled data set on u s three digit manufacturing industries from 1973 to 1996 they adapt this methodology to simulate the effects of unionization on flexibility and average costs for average size plants simulation results indicate that higher unionization was associated with higher average costs and lower flexibility than low unionization higher average costs appear to have been primarily due to higher fixed costs such as higher benefits

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

union effects on white collar compensation this paper uses two new data sources each of which combines information on worker and establishment characteristics with detailed information on the components of employee compensation to examine union nonunion pay differentials for white collar workers estimates reveal that nonunion wages and total compensation are more responsive than union pay levels to worker productivity differences such as education and work experience also large firms pay 10 to 15 percent more to their white collar employees than small firms in the nonunion sector but only 5 percent or less in the union sector overall the white collar union wage differential appears to be 3 5 to 4 0 percent rising to 7 1 percent when fringe benefits are included in the dependent variable significant spillovers to nonunion white collar workers which appear to erode the measured union nonunion pay differentials are also found

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

what shapes are overtime premium schedules some evidence from japan the uk and the us we provide estimates of the shapes of overtime premium schedules for three contrasting economies based on two digit industries through time at one end of the spectrum the united kingdom has no legislation concerning the minimum premium rate while at the other the united states mandates a high minimum premium of 1 5 times the straight time hourly rate in between these extremes japan sets a minimum premium of 1 25 we concentrate in particular on the question of whether the premium rises in average hours

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

the effect of unionism on fringe benefits this study analyzes the impact of unionism on fringes paid to production workers using data on individual establishments it compares fringe expenditures in establishments having the same level of compensation per hour and finds that unionism raises the share of compensation allotted to fringes particularly to pensions vacation pay and life accident and health insurance in addition since unionism also raises the straight time wage rate itself a prime determinant of expenditures on fringes unionism has a very sizeable impact on total fringe expenditures as well as on the fringe share of compensation the union fringe effect exceeds in percentage terms the union wage effect and is sufficiently large to suggest that standard union wage studies understate the union effect on total compensation the study also compares the fringe expenditures of production and non production workers within the same establishment controlling for within establishment pay policies the findings suggest that the pres

the cyclical behavior of marginal cost and price the author examines the cyclical behavior of price marginal cost margins for u s manufac turing after 1956 short run marginal cost is markedly procyclical this is primarily due to procyclical overtime payments incurred beca use employment is not perfectly flexible in most industries output price fails to respond to the cyclical movement in marginal cost so price marginal cost margins are markedly countercyclical the res ults contradict business cycle theories that explain low production i n a recession by a high real cost of producing they support theories that explain low production in a recession by the inability of firms to sell their output copyright 1987 by american economic association

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

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

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

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

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

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

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

the effects of the introduction of the euro on the volatility of european stock markets abstract have convergence of european economies and introduction of the euro produced some effects on european stock markets theory suggests that stabilization of fundamentals should decrease variance of stock returns for historically unstable stock markets we test this proposition with daily data for the period january 1988 may 2000 and apply a three regime markov switching model for the variance covariance matrix among several stock indices including the uk and the us the analysis shows that introduction of the euro after an initial burst of volatility common to all european stock markets has indeed stabilized the spanish and italian stock markets

a causal interpretation of extensive and intensive margin effects in generalized tobit models the usual decomposition of effects in corner solution models into extensive and intensive margins is generally incompatible with a causal interpretation this paper proposes a decomposition based on the joint distribution of potential outcomes which is meaningful in a causal sense the difference between decompositions can be substantial and yield diametrically opposed results as shown in a standard tobit model example in a generalized tobit application exploring the effect of reducing firm entry regulation on bilateral trade flows between countries estimates suggest that using the usual decomposition would overstate the contribution of the extensive margin by around 15

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

the effects of overtime pay regulation on worker compensation proponents claim that a statutory overtime premium by raising the relative cost of overtime may encourage firms to substitute employment for overtime hours the author argues that there will be no real effects if firms reduce straight time wages so as to offer the same package of weekly compensation and hours of work that was acceptable initially empirical analysis suggests that wage differentials do arise to mitigate the purely demand driven effects predicted by previous models but these differentials are not large enough to neutralize overtime pay regulation completely copyright 1991 by american economic association

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

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

why do markets move together an investigation of u s japan stock return comovements this article explores the fundamental factors that affect cross country stock return correlations using transactions data from 1988 to 1992 we construct overnight and intraday returns for a portfolio of japanese stocks using their nyse traded american depository receipts adrs and a matched sample portfolio of u s stocks we find that u s macroeconomic announcements shocks to the yen dollar foreign exchange rate and treasury bill returns and industry effects have no measurable influence on u s and japanese return correlations however large shocks to broadbased market indices nikkei stock average and standard and poor s 500 stock index positively impact both the magnitude and persistence of the return correlations stock return cross country covariances play a key role in international finance changes in these covariances affect the volatility of portfolios and asset prices as these covariances increase one expects that a fewer domestic risks are internationally diversifiable so portfolio volatility increases b the risk premium on the world market portfolio increases 1 c the cost of capital increases for individual firms and d the domestic version of the capm becomes increasingly inadequate 2 despite the important economic consequences of changes in cross country covariances the determinants of the levels and dynamics of these covariances have been little studied from an academic

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

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