preferences of citizens for agricultural policies evidence from a national survey the increasing costs of agricultural programs is raising concern about the future direction of agricultural policies data from a nationwide survey on public attitudes toward agriculture are used to examine the structure of citizens preferences for government involvement in agriculture and especially for policies to protect family farms estimates of the influence of economic and sociodemographic variables on policy preferences are computed using a multiple indicator model signs and magnitudes of estimated coefficients lend support to the self interest theory of voter behavior results question economic arguments suggesting altruistic motives as a cause of redistributionary agricultural policies

capital market segmentation and u s farm real estate pricing in this paper we present and test a segmented capital market equilibrium we extend the traditional capm by explicitly considering barriers to the flow of external equity capital into farm real estate markets the empirical results provide a plausible explanation as to why the traditional arbitrage based pricing models fail to explain equity pricing in farmland markets

the internationalisation of stock markets and the abolition of u k exchange control this paper aims to assess the impact of the abolition of u k exchange control on the degre of integration of u k and overseas stock markets using cointegration techniques we find that although there is no significant increase in the correlation of short run stock market returns for the united kingdom and certain overseas markets post 1979 there does appear to be a marked increase in the degree to which these markets move together in the long run after this date there appears to be no long run gain from diversification since cointegration of two variables implies that at least one of them can be used to help forecast the other our findings also imply the inefficiency of a number of stock markets

the term structure of euromarket interest rates an empirical investigation abstract this paper is an empirical investigation of the predictability and co movement of risk premia in the term structure of euromarket interest rates we present regression results which suggest that risk premia in three euromarket term structures and on uncovered foreign asset positions move together we test formally the hypothesis that these risk premia move in proportion to a single latent variable we are unable to reject this hypothesis the single latent variable model can be interpreted as in hansen and hodrick 1983 and hodrick and srivastava 1984 as a specialization of the icapm in which assets have constant betas on a single unobservable benchmark portfolio

the ex dividend day behavior of canadian stock prices tax changes and clientele effects with some simple assumptions the ex dividend day price drop and the associated dividend can be used to measure the market s marginal tax rate previous research has estimated the implied tax rate for the u s this paper extends the analysis to canada where the tax treatment of dividends and capital gains is completely different from that in the u s the paper also presents estimates from 1970 80 to include four distinct periods when the tax treatment was different hence we include an implied test of market efficiency as well as those for the relevance of taxes and the existence of tax based dividend clienteles

asset pricing with observable stochastic discount factors the stochastic discount factor model provides a general framework for pricing assets by specifying the discount factor suitably it encompasses most of the theories currently in use including capm and consumption capm the sdf model has been based on the use of single and multiple factors and on latent and observed factors in most situations and especially for the term structure single factor models are inappropriate whilst latent variables require the somewhat arbitrary specification of generating processes and are difficult to interpret in this paper we survey the principal different implementations of the sdf model for bonds equity and forex and propose a new approach this is based on the use of multiple factors that are observable and modelling the joint distribution of excess returns and the factors using a multi variate garch in mean process we argue that in general single equation and var models although widely used in empirical finance are inappropriate as they do not satisfy the no arbitrage condition since risk premia arise from conditional covariation between the returns and the factors both a multi variate context and having conditional covariances in the conditional mean process is essential we explain how apparent exceptions such as the cir and vasicek models in fact meet this requirement but at a price we explain our new approach discuss how it might be implemented and present some empirical evidence mainly from our own researches partly to enable comparisons to be made the survey also includes evidence from recent empirical work using more traditional approaches

a re examination of the relationship between industry structure and economic performance the objective of this study is to develop a simultaneous equations model of profitability concentration advertising expenditures and research and development outlays the data used in the estimation are subjected to regression diagnostics in an effort to determine the importance to the estimation results of a subset of the data that can have a disproportionate influence the estimation results especially for the advertising expenditures relationship and the research and development outlays equation do change when a truncated data sample based on the omission of the outliers is used this serves partly to explain why there is some disagreement in the literature on market structure and economic performance with regard to the impact of several economic factors

a simultaneous equation analysis of advertising concentration and profitability nearly two decades of econometric research have been completed in testing relationships between industrial market structure and performance recently a number of authors have reexamined these studies and cautioned on a number of conceptual difficulties which subject the results and interpretation of previous empirical work to question one primary criticism of previous research has been the failure to account for the simultaneous nature of the interrelation among elements of industry structure conduct and performance 2 4 5 11 22 25 30 while the determinants of variables such as profits advertising and concentration have been examined separately within the context of single equation models the underlying theory suggests that these variables are more properly considered as jointly determined within a system of simultaneous equations estimation of single equation models when a simultaneous system is appropriate leads to parameter estimates that are both biased and inconsistent previous empirical studies of the structure performance relationship have also suffered due to the omission of certain critical variables first the role of international trade as an element of market structure has yet to be generally incorporated into empirical studies in spite of recent theoretical work that has demonstrated its potential importance 3 20 21 second interindustry differentials in the price elasticity of demand have been neglected even though theoretical analysis clearly underscores the necessity of explicity accounting for

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

inference in nonlinear econometric models with structural change this paper extends the classical test for structural change in linear regression models see chow 1960 to a wide variety of nonlinear models estimated by a variety of different procedures wald lagrange multiplier like and likelihood ratio like test statistics are introduced the results allow for heterogeneity and temporal dependence of the observations in the process of developing the above tests the paper also provides a compact presentation of general unifying results for estimation and testing in nonlinear parametric econometric models

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

political risk and the benefits of international portfolio diversification this paper examines the benefits of portfolio investment in the stock markets of politically risky countries by evaluating the effects of political risk constraints on the performance of a portfolio of international stocks we use monthly data on political risk ratings and stock returns for a sample of thirty six countries from april 1982 to december 1991 ex post and ex ante portfolio selection strategies are developed to assess the gains from international diversification efficient sets are derived using a quadratic programming technique we use four ex ante portfolio strategies whose optimal portfolio weights are those of the equally weighted portfolio the minimum variance portfolio the certainty equivalence tangency portfolio and the bayes stein portfolio the empirical findings based on the performance tests of jobson and korkie 1981 suggest that diversification among politically risky countries improves the risk return characteristics of optimal portfolios however the most striking benefit of the inclusion of politically risk countries in an international portfolio is the reduction in overall portfolio risk

measuring advertising intensity and intangible capital in the greek food industry the objective of the present paper is to examine market conduct and its determinants in the greek food industry and to measure how and to what degree the industry and the firm s structural characteristics affect advertising intensity an advertising intensity model giving emphasis to intangible capital is formulated data from icap have been used on a four digit classification for the food industry during the 1990 1997 period the empirical results indicate that intangible capital positively affects the advertising intensity of the firm and plays an important role in strategies that affect total cost demand and structure of the market

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

in search of the exchange risk premium a six currency test assuming mean variance optimization abstract a number of authors examining deviations of actual rates of currency depreciation from forward discounts have claimed to find evidence of risk premiums if these deviations are indeed partly due to risk premiums rather than being entirely due to expectational errors then they should be systematically related to those variables on which risk premiums are thought to depend finance theory tells us that if investors optimize with respect to mean and variance the risk premium depends in a specific way on 1 the supplies of assets denominated in the various currencies 2 the variance covariance matrix of the rates of return and 3 the coefficient of risk aversion the null hypothesis of this paper is that the coefficient of risk aversion is zero countries assets are perfect substitutes and risk premiums are nonexistent the alternative hypothesis is that rates of return are systematically related to asset supplies by a macroeconomic portfolio balance function the maximum likelihood technique used dominates previous attempts to find such a relationship in that the parameters of the portfolio balance function are constrained to depend on the variance covariance matrix as the finance theory says they should on the other hand the technique also dominates previous applications of the finance theory in that the expected returns are allowed to vary over time as the macroeconomic portfolio balance theory says they should the paper s finding is a statistical inability to reject the null hypothesis for a portfolio of six currencies although this could be due to low power in the test

modelling risk premia in international asset markets abstract the intertemporal capital asset pricing model icapm has been widely used as a vehicle to explain the predictability of excess returns in forward foreign exchange markets this approach ignores the heterogeneity in the assets actually traded in international asset markets in this paper it is shown that the latent variable risk premium model is not rejected by the data when tested on a portfolio including equity and bonds in four currencies however application of a more general test rejects parameter stability suggesting that the latent variable model is not as successful as the previous tests would imply

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

a note on exchange rate expectations and nominal interest differentials a test of the fisher hypothesis this note tests the hypothesis that nominal interest differentials between similar assets denominated in different currencies can be explained entirely by the expected change in the exchange rate over the holding period this proposition often called the fisher open hypothesis or the hypothesis of perfect asset substitutability has been a major component of recent theories of exchange rate determination and has important implications for monetary policy 1 the fisher hypothesis differs from the covered interest parity theorem enunciated by keynes 11 while covered interest parity equates the nominal interest differential between financial centers to a known premium or discount on forward foreign exchange and is thus in principle riskless fisher parity involves risk in an essential way the two conditions are equivalent only when forward exchange rates equal expected future spot rates recent theoretical work for example that of grauer litzenberger and stehle 8 kouri 12 and frankel 6 shows that this need not be the case when market participants are risk averse thus while covered interest parity must always hold exactly in an informationally efficient asset market with no transactions costs fisher parity need not nominal interest differentials may reflect risk premia in addition to expected exchange rate movements 2 it should be emphasized at the outset that the tests conducted in this paper are really joint tests of the fisher hypothesis and a weak form of foreign exchange market informational efficiency levich 14 has argued that tests of market efficiency are always joint tests involving some hypothesized structure of normal equilibrium returns below we assume informational efficiency and instead test fisher s hypothesized arbitrage condition that nominal interest differentials equal expected percentage changes in exchange rates

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

time varying betas and risk premia in the pricing of forward foreign exchange contracts abstract this paper specifies the single beta capital asset pricing model for the pricing of forward foreign exchange contracts from the point of view of a u s investor parametric specification of the betas as arch like processes explicitly allows for time variation as well as sign variation of the risk premium in the forward foreign exchange market i estimate the model jointly for four currencies using a generalized method of moments procedure the results show significant time variation for the betas and tests of the overidentifying restrictions are generally favorable to the model

measurement of market integration and arbitrage we develop a measurement theory of market integration based on two notions of integrated markets first two markets cannot be perfectly integrated in any sense if one can construct two portfolios one from each market that have identical payoffs but different prices in that case the law of one price is violated across the markets second they cannot be integrated in a stronger sense if there are cross market arbitrage opportunities two measures of market integration are developed respectively reflecting these notions the smaller the measures the more closely integrated in the respective senses the markets among other things they are interpreted as measuring pricing discrepancy between markets article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a multivariate garch model of international transmissions of stock returns and volatility the case of the united states and canada this study examines the short run dynamics of returns and volatility for stocks traded on the new york and toronto stock exchanges the main finding is that inferences about the magnitude and persistence of return innovations that originate in either market and that transmit to the other market depend importantly on how the cross market dynamics in volatility are modeled moreover much weaker cross market dynamics in returns and volatility prevail during later subperiods and especially for canadian stocks with shares dually listed in new york implications for international asset pricing hedging strategies and regulatory policy are discussed

profit entry and changes in concentration abstract the simultaneity between profit entry and changes in concentration is examined the sample includes 481 observations on 4 digit industries over the years 1972 1977 and 1977 1982 results show that profits respond positively to entry barriers and initial concentration net entry responds positively to initial profits and responds negatively to entry barriers concentration moves toward its steady state level but the rate of adjustment is very slow the competitive process left on its own does not seem to move quickly toward equilibrium

what determines the elasticity of industry demand abstract this paper develops estimates of price elasticity of demand for a sample of u s food and tobacco manufacturing industries and tests a model explaining differences in interindustry elasticity the empirical results are consistent with the hypothesis that demand elasticity is in part determined by the competitive behavior of firms in an industry in particular high advertising expenditures result in lower elasticities of demand other important variables influencing demand elasticity are industry concentration the stage of production the existence of protection from domestic and foreign entry and the extent of new product introduction in a particular market

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

efficiency and market power in greek food industries this paper uses firm level data to examine the market power versus efficiency hypothesis by taking into consideration both the long run behavior of profitability and the possible endogeneity bias among profitability market share and advertising variables in a sample of 266 greek food manufacturing firms in the period 1987 95 two stage least squares results show both a direct effect of firm characteristics and an indirect effect of industry characteristics on profitability which do not provide support for the efficiency hypothesis alone but they do show that profitability is affected by both firm and industry variables

consumption risk and international equity returns some empirical evidence abstract this paper tests whether real stock returns from four countries are consistent with consumption based models of international asset pricing the paper finds that the consumption based model does not adequately describe these returns during the period of generalized floating exchange rates since restrictions on international capital movements were relaxed considerably in the 1980s the tests are carried out for that sub period as well in contrast to the results for the full sample observed real equity returns during the 1980s are found to be consistent with the predictions of the consumption based model

globalization and the value of us listing revisiting canadian evidence abstract as capital markets become integrated the value of foreign listing and consequently the number of foreign listings should be expected to decline the dramatic surge in foreign listings on us stock exchanges in recent years suggests that motivations and value of listing may also be changing as markets become increasingly globalized we explore this issue by comparing both short and long run valuation effects of canadian listings in the us in pre and post 1990 periods we document that the positive price and liquidity effects for canadian stocks surrounding us listing have declined over time the analysis of long run performance however shows that canadian firms list in the us after a strong market performance but underperform canadian market indexes by 13 30 over the three years after the listing in both pre and post 1990 periods further the determinants of long run performance appear to be significantly different from that in the short run our evidence suggests that valuation effects of us listing may be driven by several factors including liquidity and industry factors that vary cross sectionally and over time

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

cross holdings estimation issues biases and distortions cross holding occurs when listed corporations own securities issued by other corporations we analyze the effect of cross holdings on market capitalization and return measures as well as implications for econometric testing of asset pricing theories we show that cross holdings generally distort standard market return and risk measures the magnitudes of such distortions are calculated for simulated economies by using a variety of crossholding patterns in addition cross holdings are shown to induce nonstationarity in the covariance matrix of security returns we examine the effect of this nonstationarity for estimating efficient frontiers and factor structures we also discuss the implications for risk return estimates in equilibrium asset pricing models article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

concentration profitability and trade in a simultaneous equation analysis the case of taiwan this paper is the first attempt to use a simultaneous four equation system to study the role of foreign trade in the analysis of market structure and performance and the determinants of trade intensity in a newly industrializing country taiwan a cross sectional analysis is carried out with the manufacturing censuses of 1976 the results indicate that public enterprises significantly influence market structures and performance also import control measures influence import intensity significantly and offset potential impacts of imports on concentration and on profitability however trade intensity is mainly explained by comparative advantage rather than market forces concentration and profitability

international listings of stocks the case of canada and the u s the globalization of financial markets has seen ever increasing numbers of firms choosing to list their stocks on foreign exchanges we examine whether the extent of economic and financial market integration or segmentation between a firm s home country and listing country influences stock price reaction by examining the case of two similar countries the u s and canada during the 100 days before the week of interlisting in the u s risk adjusted stock prices of canadian firms rise on average by over 9 4 rise by an additional 2 around the interlisting date but follow with a corresponding drop of 9 7 in the 100 days after interlisting we interpret this evidence to be consistent with the financial market segmentation between canada and the u s however a subsample of canadian resource firms does not exhibit these stock price effects suggesting industry related factors may also be an important determinant of integration we also find average trading volume in interlisted stocks more than doubles in the months following interlisting

the causal relationships between equity indices on world exchanges the engle and granger cointegration analysis and granger causality tests are applied to monthly time series of nine major stock market indices over the period january 1982 to february 1991 to examine for causal linkages the empirical results indicate that there is adequate evidence to refute the notion of informationally efficient stock markets

are correlations of stock returns justified by subsequent changes in national outputs abstract in an integrated world capital market the same pricing kernel is applicable to all securities we apply this idea to the stock returns of different countries we investigate the underlying determinants of cross country stock return correlations first we determine for a given measured degree of commonality of country outputs what should be the degree of correlation of national stock returns we propose a framework that contains a statistical model for output and an intertemporal financial market model for stock returns we then attempt to match the correlations generated by the model with measured correlations our results show that under the hypothesis of market segmentation the model correlations are much smaller than observed correlations however assuming world markets are integrated our model correlations can be matched with observed correlations

estimation of portfolio balance functions that are mean variance optimizing the mark and the dollar abstract this paper offers a way of efficiently estimating the parameters in demand functions for mark and dollar assets the technique imposes the constraint that the parameters rather than being determined arbitrarily are based on investors optimizing behavior regarding expected returns and variances it dominates some previous empirical applications of finance theory in the respect that the expected returns are allowed to vary from period to period which is a necessary feature of any macro model the constraint that the parameters are based on mean variance optimization is also tested and not rejected

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

demand for national public goods estimates from surveys this paper presents an empirical method of estimating aggregate demand functions for national public goods the technique combines survey responses and tax incidence figures in a probit model the model provides estimates of average willingness to pay for federal government services and simultaneously regresses these estimates on socioeconomic characteristics thus obtaining estimates of the demand function the main findings are that demand for defense space foreign aid welfare education and aid to cities is a concave function of income a negative function of expenditure level generally and dependent upon such characteristics as race age education level and sex

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

financial markets in east asia and europe during the global financial crisis hen the asian nancial crisis erupted in july 1997 an increase inregional nancial market co movements followed even though theincreases in correlations were the largest in east asia similar increasesoccurred in europe chakrabarti and roll 2002 numerous studies haveshown that nancial crises tend to spread across country borders and nancialmarkets often move more closely together during such episodes however each nancial crisis is unique in its own way and the recent nancial crisis originat ing in the us subprime market is no exception while there are a number ofdifferent explanations for the asian nancial crisis most economists seem toagree that excessive lending practices in the us property market and a rapidexpansion of complex nancial products were some of the main reasons behindthe recent crisis the spread of the subprime crisis is also different from previ ous crises originating in the subprime sector it soon spread through the us nancial system and then onward to the european nancial sectors where nancial institutions were exposed to the sudden and severe increase indefaults most asian countries on the other hand have primarily been affectedthrough real economy channels rather than via a spread among countries nan cial sectors not only developing countries but also advanced countries wereaffected by sudden shortfalls in their export sectors however even though thespread of the crisis has occurred through different channels it has affected rm

the behavior of eurocurrency returns across different holding periods and monetary regimes recent empirical studies of the risk premium across foreign exchange and other asset markets such as equity and longer term bonds have found conflicting evidence about the latent variable model restrictions of the consumption based intertemporal capital asset pricing model while studies using data for holding periods of one month or less generally reject the model evidence using three month holding periods indicates that the model cannot be rejected when including the returns on long relative to short deposit rates this paper investigates the sources of differences in results using returns on foreign exchange and eurocurrency deposits at three different maturities

exchange rate and foreign inflation risk premiums in global equity returns abstract we test for the pricing of exchange rate and foreign inflation risk in equities our tests are motivated by the empirical implications of the models of solnik 1974b solnik b 1974b the international pricing of risk an empirical investigation of the world capital market structure journal of finance 365 377 as revised by sercu 1980 sercu p 1980 a generalization of the international asset pricing model revue de l association francaise de finance 1 91 135 grauer et al 1976 grauer f litzenberger r stehle r 1976 sharing rules and equilibrium in an international capital market under uncertainty journal of financial economics 3 233 256 and adler and dumas 1983 adler m dumas b 1983 international portfolio choice and corporation finance a synthesis journal of finance 38 925 984 both exchange rate and foreign inflation risk factors can explain part of the within country cross sectional variation in returns our results have important implications for hedging exchange rate risk they also demonstrate that home bias at least in us equity portfolios cannot be the result of us investors efforts to hedge their domestic inflation

term premiums and the integration of the eurocurrency markets abstract this paper provides comparative evidence on the time variation of expected returns across the term of eurocurrency markets first it is shown that forward spot spreads contain substanial information about future changed in 1 month to 5 year rates both in the eurodollar and eurodm markets next a latent variable model is constructed with different benchmark portfolios across currencies integration implies that the time variation of the benchmark portfolios must be the same across currencies little evidence is found against integration of the eurocurrency markets jel g15 g12

additional evidence on integration in the canadian stock market this paper reexamines the integration of the canadian and u s stock markets in the 1977 86 period that is relatively free from capital controls the study employs both the capm and the apt frameworks under both models the evidence is consistent with segmentation in the 1977 81 subperiod but supports integration in the 1982 86 subperiod using the apt framework we also find that the canadian stocks interlisted on the u s exchanges and nasdaq are priced in an integrated market and segmentation is predominant for the non interlisted canadian stocks in a study using an international capm framework jorion and schwartz 1986 find strong evidence of segmentation in the pricing of canadian stocks relative to a north american market comprising the canadian and u s stock markets the rejection of integration holds for canadian stocks that are interlisted on the u s stock exchanges and nasdaq as well as for domestic canadian stocks that are listed only on the canadian stock exchanges their results are surprising since the canadian and u s economies are highly integrated and the structure and regulation of security markets in the two countries are similar as well the canadian stocks interlisted on the u s stock exchanges list under the same regulation as the domestic u s stocks thus ex ante we would expect the canadian and u s stock markets to be integrated especially for the interlisted stocks 1 this study reexamines the integration in the canadian market employing both the capm and the apt frameworks since tests of market integration are joint tests of a specified model and market integration a relevant question is whether the two models produce different inferences pertaining to the integration issue in addition we explore this issue in a period that is

an empirical comparison of alternative models of capital asset pricing in germany abstract in an empirical investigation this research finds that the capm is a better explanatory model of risk return relationships in the german stock market than the ccapm

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

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

a test of perfect substitutability in the foreign exchange market i motivations for the test the question of whether or not domestic bonds are perfect substitutes for foreign bonds in investors portfolios implying that the expected rates of returns must be equalized across currencies is an important one for two reasons the question is crucial first for choosing among various asset market models of exchange rate determination and second for evaluating tests of efficiency in the forward exchange market to illuminate the first motivation a brief discussion of models of exchange rate determination is necessary all asset market models share the assumption that there are no significant transactions costs capital controls or other impediments to the international flow of capital thus actual portfolios adjust instantaneously to equal desired portfolios this implies for example covered interest parity the domestic interest rate should differ from the foreign interest rate by an amount exactly equal to the forward discount rate perfect substitutability between domestic and foreign bonds is the stronger assumption that market participants are indifferent as to the currency composition of their portfolio it implies uncovered interest parity the domestic interest rate must differ from the foreign interest rate by an amount exactly equal to the expected rate of depreciation the perfect substitutability assumption is far from standard in fact exchange rate models within the asset market view can be classified into those that belong to the monetary approach defined by the assumption of perfect substitutability and those that belong to the portfolio balance approach defined by the assumption of imperfect substitutability in the portfolio balance approach investors hold well defined proportions of their wealth in the form of each country s assets with the proportions depending on the expected rates of return as in equation 1

on profitability and industrial concentration in pakistan abstract non inclusion of an important element of market structure in the profitability equation by earlier writers might have caused their estimates to suffer from specification error due to an omitted variable we have tried to formulate a more comprehensive model in which elasticity of demand advertising and concentration capture market structure while the supply side has been incorporated by including productivity other factors used to explain the degree of monopoly are capital intensity advertising and trade our results indicate that the main determinants of the profit margin are capital intensity rising productivity and industrial concentration we find that there was some dilution due to competition from foreign trade but its impact has been swayed by other factors

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

profitability concentration imports and exports the case of taiwan s midstream petrochemical industries based on an open economy oligopoly model causalities among domestic firms price cost margin pcm domestic concentration import and export shares are derived and a simultaneous equation system is established by utilizing the 1989 1997 data of taiwan s midstream petrochemical industries three stage least squares is used to estimate the system the empirical results confirm the derived results and demonstrate 1 there exist simultaneous relationships among domestic pcm domestic concentration import and export shares 2 import concentration affects domestic concentration positively but affects domestic pcm import and export shares negatively 3 diversifying international markets improves domestic firms pcm 4 domestic firms seem to be in a situation of collusion

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

the influence of increased foreign competition on industrial concentration and profitability abstract this paper uses the chilean manufacturing censuses of 1967 and 1979 to examine the effects of the chilean reforms in the mid 1970s on market structure and performance the reforms substantially increased the concentration in industry and substantially reduced profitability these outcomes are interpreted in the light of hypotheses about the effect of potential entrants on market structure and on the pricing behavior of incumbents next a cross sectoral simultaneous equations model of structure and performance is estimated to isolate the contribution of import and export shares to cross sectoral variations in concentration and profitability and to test for structural change between the two censuses the analysis confirms that the liberalization of trade changed the way import and export shares determined profitability and supports the import discipline hypothesis

the consumer demand for education this paper presents new evidence on the estimation of the demand for education unlike previous studies this study uses the translog les indirect utility function to analyze the demand for education within a multicommodity framework for annual u s consumption expenditures for the period 1958 82 various restrictive existing specifications of the demand for education are tested and rejected income and price elasticities of education are estimated that are larger than those of existing studies taste change has moved toward the consumption of education and the consumer has suffered from a loss in welfare due to increases in prices over time

the effects of market segmentation and investor recognition on asset prices evidence from foreign stocks listing in the united states non u s firms cross listing shares on u s exchanges as american depositary receipts earn cumulative abnormal returns of 19 percent during the year before listing and an additional 1 20 percent during the listing week but incur a loss of 14 percent during the year following listing we show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing our tests provide support for the market segmentation hypothesis and merton s 1987 investor recognition hypothesis the globalization of u s capital markets has accelerated dramatically in the past decade increasing numbers of companies from overseas have chosen to either raise capital through global equity issues or prepare for future capital raising by way of cross listings on u s exchanges as of 1997 about 1 300 non u s companies have listed their shares for trading on the new york stock exchange nyse the american exchange amex the national association of securities dealers automation quotation nasdaq system or

compensation across executive labor markets what can we learn from cross listed firms there is wide consensus that chief executive officers ceos of us firms earn significantly more than their canadian counterparts using a matched sample we find that the majority of this difference is due to us ceos earning 50 more than ceos of canadian non cross listed firms we find no such us premium for canadian cross listed firms because the use of options allows the cross listed firms to keep pace with their neighbors to the south while firms that list only in canada compete in the labor market defined by their national boundary cross listed firms appear to be competing directly with their us counterparts for executive talent in investigating alternative explanations for the elimination of the compensation differential for canadian cross listed firms we find evidence consistent with both the bonding and the rent extraction hypotheses

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

an analysis of the use of derivatives by the canadian mutual fund industry in this paper we examine the use of derivatives by mutual funds in canada first both the incidence and extent of derivatives usage are low second larger growth oriented domestic equity funds are more likely to use derivatives we then compare returns and risks between derivative users and non users with the following findings 1 there exist no differences between users and non users for foreign equity funds 2 for fixed income funds users have higher returns and risks than non users 3 for domestic equity funds users have lower returns but higher risks than non users however the differentials disappear if warrants are excluded from the definition of derivatives

emerging market exchange rate exposure abstract we estimate the exposure of emerging market companies to fluctuations in their domestic exchange rates we use an instrumental variable approach that identifies the total exposure of a company to exchange rate movements yet abstracts from the influence of confounding macroeconomic shocks in the sub period of 1999 2002 we find that depreciations tend to have a negative impact on emerging market stock returns in the sub period of 2002 2006 this tendency has largely disappeared since we estimate the exchange rate exposure of firms from different countries with a common set of instruments we can make coherent cross country comparisons of their determinants we find that the impact of various measures of debt on exchange rate exposure which is negative and significant in the early sub period becomes insignificant and even reverses sign in the recent sub period

the determinants of exit in an open economy in this paper the determinants of exit are investigated for the manufacturing sector of the united states economy which has been subjected to growing international influences the analysis uses united states cross sectional data the results of the exit equation suggest that low profitability declining industry growth and displacement of incumbents by entrants foster exit international influences are also seen to have an impact on u s manufacturing exit specifically imports into an industry have a small effect on exit and protection has little influence in stemming exit

capital controls and international capital market segmentation the evidence from the japanese and american stock markets the paper focuses on two countries japan and the u s to test the integration of capital markets in japan the enactment of the foreign exchange and foreign trade control law in december of 1980 amounted to a true regime switch that virtually eliminated capital controls using multifactor asset pricing models we show that the price of risk in the u s and japanese stock markets was different before but not after the liberalization this evidence supports the view that governments are the source of international capital market segmentation the notion that world capital markets are perfectly integrated is central to most theoretical developments in both international finance and macroeconomics indeed it also lies behind much of the recent international policy discussion capital markets are integrated if assets with perfectly correlated rates of return have the same price regardless of the location in which they are traded 1 segmentation may arise either because of government impediments to capital movements or because of individuals attitudes or irrationality if the hypothesis that the international capital markets are integrated is rejected there is still an important empirical question left unanswered which is related to the source of segmentation while there is a rich body of theoretical research on international market integration only a few studies have tried to investigate this important question empirically a first group of empirical studies on market integration has generally adopted

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

international risk sharing and capital mobility abstract under certain assumptions pareto efficient risk sharing implies that changes in consumption across nations will be perfectly correlated this result leads to an indicator of the welfare loss due to imperfect sharing of consumption risks across nations this indicator is used to evaluate the welfare implications of restrictions on various components of the international capital flow holding constant other components of the flow and domestic investment we find that variability in national consumption growth rates would have been considerably greater if capital flows had been restricted and that welfare would have been reduced significantly

does an endogenous relationship exist between environmental and economic performance a resource based view on the horticultural sector the aim of this paper is to analyse the relationship between environmental and economic performance from the resource based theory within firms of the fresh fruit and vegetables sector this study considers that the adoption of environment friendly practices has a greater influence on firms opportunities and abilities in the agricultural sector than in manufacturing sectors and leads to closer links between performance variables the reference for this empirical analysis is a panel data of horticultural farming marketing firms in spain the voluntary environmental programmes and the heterogeneity of their application lead us to regard acquiring a competitive advantage as a relevant driver to improve environmental performance in this sector a simultaneous equations model is suggested reflecting the differential environmental effect and the assumption of endogeneity among variables the results show a positive impact of environmental differentiation on profitability and market share also suggesting that the perception of this positive experience implies greater environmental performance

behavior of systematic risk in a regionally integrated model for stock prices abstract regional ec capital market integration is examined by monitoring the behavior of systematic risk vis a vis a single index time series return generating model evidence supports that the ec markets for securities have gradually become more integrated and that the capital controls are important sources of segmentation

why empirical international portfolio models fail evidence that model misspecification creates home asset bias abstract international portfolio models consistently predict that investors should put much more of their wealth into foreign assets than they actually do a result known as home asset bias we use actual international portfolio data to show how model misspecification contributes to this bias we find that three widely used simplifying assumptions produce optimal portfolio weights that are significantly different from the weights produced by an unsimplified model in particular imposing the invalid assumption that ppp holds exaggerates the degree of home asset bias these findings suggest that researchers should pay greater attention to empirical model specification in the future