dynamic linkages among equity markets local versus basket currencies this article compares the stability of interrelationships among nine national equity markets by employing basket currencies versus individual base currencies to measure rates of return we show that the average correlations of equity indexes based on basket currencies are much lower than the average correlations of equity indexes based on individual home base currencies additionally empirical directed graph results from using basket currencies are more consistent with each other than the results from using different individual currencies we conclude that basket currencies provide more robust results for studying equity market comovements than individual currencies by implication studies on equity market interrelationships including studies on potential financial contagion between equity markets should use basket currencies to avoid currency dependent results

equity returns and integration is europe changing this paper analyses the consequences of the process of financial and economic integration on european equity markets it documents significant changes in fundamentals notably an increased synchronization of macroeconomic activities and a non negligible evolution in pricing with a decrease in the cost of capital and converging equity premiums as to equity returns themselves in the face of what could turn out to be long run upward trends in the correlations among both country and sector returns and a narrowing of the superiority of country factors the benefits to be gained from finding diversification opportunities at a more disaggregated level appear to be higher than ever copyright 2004 oxford university press

is international diversification really beneficial abstract previous research claims that low constant correlations among international stock indices create substantial risk reduction from diversification we contend that only using constant correlations is too simplistic an approach we examine international diversification by 1 using conditional correlations 2 evaluating tail risk including the effect of skewness and kurtosis and 3 examining the possible tradeoffs of standard deviation with correlation skewness and kurtosis we show that conclusions concerning diversification based solely on constant correlations across markets can be misleading since the diversification benefits are time varying are affected by non normality and depend on the benchmark country employed finally tradeoffs do exist between standard deviation and the other risk factors

global pricing of equity global equity management has historically been structured around country asset allocation this approach was supported by the observations that the country factor is the major source of influence on stock price behavior and that the correlation between equity and currency is close to zero and unstable if a corporation is regarded as a portfolio of international activities however its stock price should be influenced by international factors in relation to the geographical breakdown of its activities rather than where its headquarters is located or its stock is traded we examined a large cross section of security prices and found that regional factors and currency factors have a strong influence on asset returns beyond that of domestic factors moreover the sensitivity of individual company returns to nondomestic factors is closely related to the extent of their international activities as proxied by the relative importance of foreign sales to total sales we review the implications of these findings

comovement in international equity markets a sectoral view abstract we investigate shifts in correlation patterns among international equity returns at the market level as well as the industry level we develop a novel bivariate garch model for equity returns with a smoothly time varying correlation and then derive a lagrange multiplier statistic to test the constant correlation hypothesis directly applying the test to weekly data from germany japan the uk and the us in the period 1980 2000 we find that correlations among the german uk and us stock markets have doubled whereas japanese correlations have remained the same both dates of change and speeds of adjustment vary widely across countries and sectors

trying to explain home bias in equities and consumption investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest a phenomenon called equity home bias in the absence of this bias investors would optimally diversify domestic output risk using foreign equities therefore consumption growth rates would tend to co move across countries even when output growth rates do not empirically however consumption growth rates tend to have a lower correlation across countries than do output growth rates a phenomenon i call consumption home bias in this paper i discuss these two biases and their potential relationship as suggested by the literature

the structure of european stock returns analysis of the daily localcurrency returns on 105 stocks from 11 european countries over the 1986 89 period reveals the importance of various market and sector factors to stock price volatility factor analysis as well as an analysis of variance with currency market and industry factors show that national stock market factors clearly dominate stock price variances even after adjusting for currency world stock market european stock market and industry trends

international transmission of information evidence from the euroyen and eurodollar futures markets abstract this paper examines the information transmission between japan and the us by using the tokyo euroyen and chicago eurodollar futures these two interest rate futures markets provide a better understanding of international information transmission than stock markets which have been shown to exhibit nonsynchronous trading and market segmentation the results show that traders in tokyo chicago use information that is revealed overnight in chicago tokyo the bivariate egarch t model provides no evidence of volatility spillovers in either direction suggesting that the opening price rapidly reflects foreign information the overall results support the hypothesis that the domestic market efficiently adjusts to foreign news the results are also broadly consistent with the covered interest arbitrage effects

another look at the role of the industrial structure of markets for international diversification strategies abstract this paper re examines the extent to which gains from international diversification are due to differences in industrial structure across countries recent papers by roll 1992 journal of finance 47 3 42 and heston and rouwenhorst 1994 journal of financial economics 36 3 27 investigate this issue and find conflicting evidence using a new database the dow jones world stock index with coverage in 25 countries and over 66 industry classifications we decompose comprehensively both country and industrial sources of variation we confirm that little of the variation in country index returns can be explained by their industrial composition we also uncover differences in the proportion of variation in industry index returns that is captured by country and industry factors and discuss the implications for global diversification strategies

international stock comovements with endogenous clusters abstract we examine international stock return comovements of country industry portfolios our model allows comovements to be driven by a global and a cluster component with the cluster membership endogenously determined results indicate that country industry portfolios tend to cluster mainly within geographical areas that can include one or more countries the cluster compositions substantially changed over time with the emergence of clusters among european countries from the early 2000s the cluster component was the main driver of country industry portfolio returns for most of the sample except from the mid 2000s to the mid 2010s when the global component had a more prominent role

international competition and exchange rate shocks a cross country industry analysis of stock returns this article systematically examines the importance of exchange rate movements and industry competition for stock returns common shocks to industries across countries are more important than competitive shocks due to changes in exchange rates weekly exchange rate shocks explain almost nothing of the relative performance of industries using returns measured over longer horizons the importance of exchange rate shocks increases slightly and the importance of industry common shocks increases more substantially both industry and exchange rate shocks are more important for industries that produce internationally traded goods but the importance of these shocks is economically small for these industries as well economists journalists and politicians around the world argue that some of the industries in their country compete vigorously with the same industries in other countries and that exchange rate shocks affect their competitiveness in the united states it is routinely stated that some u s industries compete with japanese industries and that a depreciation of the yen is bad for these u s industries and good for the rival japanese industries if the yen falls trade tensions could intensify between the u s and japan as autos and machinery from japan gain a competitive edge 1 further the exchange rate literature shows that exchange rate shocks lead to persistent deviations from purchasing power parity 2 froot and klemperer 1989 and knetter 1989 1993 among others demonstrate that deviations from purchasing power parity lead to sharp changes in price markups and profit margins for exporters

economic integration and the comovement of stock returns abstract we analyze how economic integration affects the cross country comovements in stock returns in developed and emerging markets bilateral trade intensity increases the correlation of returns while real exchange rate volatility the asymmetry of output growth and export dissimilarity decrease it

how much a symmetry in europe evidence from industrial sectors abstract to what extent do european countries differ with respect to the sources of cyclical fluctuations of industrial output we look at output data disaggregated by industry for 11 european countries and on the basis of a cointegrated vector autoregression model we examine the correlation of output innovations at the industry and country levels we also discuss to what extent output innovations can be considered symmetric or asymmetric our results point to the fact that on average more variance of output innovations is explained at the country rather than the industry level we also find that the importance of asymmetric disturbances is quite varied among the 11 countries and we identify a core of countries with a higher degree of symmetry

changing risks in global equity portfolios given recent changes in sector and style risk and in manager betting behavior in the global equity markets we analyzed the relative importance of the major active risk drivers and the implications of their relative importance for global multimanager portfolio construction using cross sectional regressions and multimanager portfolio simulations we found that the effect of style and sector bets on active manager risk increased after 1998 and that using style balanced portfolios could have substantially reduced active risk during the 1998 2002 period most of the risk reduction however would have come from the diversification of stock sector selection risk because growth and value managers make different bets on certain sectors common bets on major countries such as japan or the united states persisted during this period but their importance decreased because of smaller benchmark relative bets and country risk in light of the changes using multiple risk control strategies to construct multimanage

dynamic stock market covariances in the eurozone abstract this paper examines the short term dynamics macroeconomic sensitivities and longer term trends in the variances and covariances of national equity market index daily returns for eleven countries in the euro currency zone we modify colacito engle and ghysel s mixed data sampling dynamic conditional correlation garch model to include a new scalar measure for the degree of correlatedness in time varying correlation matrices we also explore the robustness of the findings with a less model dependent realized covariance estimator we find a secular trend toward higher correlation during our sample period and significant linkages between macroeconomic and market wide variables and dynamic correlation one notable finding is that average correlation between these markets is lower when their average gdp growth rate is lower or when more of them have negative gdp growth

the dynamics of structural realignment g overnments render decisions on how resources and values are allocated in a society in the united states congress is the institution in which most of the key allocating decisions are made to the extent the u s political system is integrated the coalitions that form around the issues debated in congress should be reflected in the coalitions that support presidential candidates and those that support the major political parties we formulate a spatial theory of political change in which new ideological cleavages appear in congressional behavior and presidential elections and gradually reorganize the mass party base the theory leads us explicitly to consider the question of realignment and to specify conditions under which the parties will lose support from voters

does industrial structure explain the benefits of international diversification abstract we examine the influence of industrial structure on the cross sectional volatility and correlation structure of country index returns for 12 european countries between 1978 and 1992 we find that industrial structure explains very little of the cross sectional difference in country return volatility and that the low correlation between country indices is almost completely due to country specific sources of return variation diversification across countries within an industry is a much more effective tool for risk reduction than industry diversification within a country

international diversification strategies revisited from the risk perspective following roll roll r 1992 industrial structure and comparative behaviour of international stock market indices journal of finance 47 3 42 and heston and rouwenhorst heston s l rouwenhorst g k 1994 does industrial structure explain the benefits of international diversification journal of financial economics 36 3 27 researchers have decomposed stock returns into country and industry components evidence suggests that industry components have become more important in recent years but the reasons for this are unclear existing research concentrated mainly on stock returns in industrial countries in this paper we consider instead the decomposition of stock risks within emerging equity markets we provide a rationale for this procedure and its relationship to return decompositions the results provide new firm specific evidence on the debate over country and industry components their stability over time and the implications for portfolio diversification

does institutional ownership matter for international stock return comovement funding portuguese foundation for science and technology fct uid ges 00407 2013 ptdc iim fin 2977 2014 and european research council

international diversification an extreme value approach abstract international diversification has costs and benefits depending on the degree of asset dependence we study international diversification with two dependence measures correlations and extreme dependence we discover that dependence has typically increased over time and document mixed evidence on heavy tails in individual countries moreover we uncover three additional findings related to dependence first the timing of downside risk differs depending on the region surprisingly recent latin american returns exhibit little downside risk second latin america exhibits a great deal of correlation complexity third according to the empirical results correlation does not vary with returns but extreme dependence does vary monotonically with regional returns our results are consistent with a tradeoff between international diversification and systemic risk they also suggest international limits to diversification and that international investors demand some compensation for joint downside risk during extreme events

the european union the euro and equity market integration abstract we use industry valuation differentials across european countries to study the impact of membership in the european union as well as the eurozone on both economic and financial integration in integrated markets discount rates and expected growth opportunities should be similar within one industry irrespective of the country implying narrowing valuation differentials as countries become more integrated our analysis of the 1990 2007 period shows that membership in the eu significantly lowered discount rate and expected earnings growth differentials across countries in contrast the adoption of the euro was not associated with increased integration our results do not change when the sample is extended to include the recent crisis period

sector effects in developed vs emerging markets this examination of developed and emerging markets suggests that toward the end of the 20th century sector effects caught up with country effects in the developed markets of the world as a result of rising sector effects rather than declining country effects for emerging markets however country effects have remained the dominant influence relative to sector effects although the importance of country effects has been on a steady decline these results confirm that international equity managers should emphasize sector based approaches when investing in the developed countries but should continue country based allocation strategies in emerging markets

the public and private marginal product of capital lowe gratefully acknowledges financial support from esrc award number es i02476x 1 and perez sebastian from ministerio de economia y competitividad and fondo europeo de desarrollo regional eco2015 70540 p mineco feder and the generalitat valenciana prometeo 2013 037 papageorgiou acknowledges financial support from the uk department for international development

country v sector effects in equity returns and the roles of geographical and firm size coverage since roll the journal of finance 47 1 3 41 1992 and heston and rouwenhorst journal of financial economics 36 3 27 1994 there has been a debate whether country factors in international stock returns are typically more variable than sector factors the addition of emerging markets ems does boost the ratio of country factor variance relative to industry factor variance these markets have a higher variability but are also less related to global factors investigating to what extent this phenomenon can be tracked down to the impact of adding more small firms we find the following 1 small firms do have higher volatility but only after controlling for country and sector affiliation 2 small firms do have weaker sector affinity as expected 3 small firms unexpectedly have weaker local market sensitivities than large firms facts 2 and 3 mean that adding more small firms to the data base has a diversifying effect on both the sector and country factor variance while the impact on sector variance is larger the net effect turns out to be tiny 4 adding emerging markets has a very marked impact on the variance ratio in fact the addition of small stocks to the sample hardly dents the effect of adding ems thus the role of ems cannot be reduced to just a small firm phenomenon

long term global market correlations the correlation structure of the world equity markets varied considerably over the past 150 years and was high during periods of economic integration we decompose diversification benefits into two parts one component due to variation in the average correlation across markets and a another component due to the variation in the investment opportunity set from this we infer that periods of globalization have both benefits and drawbacks for international investors globalization expands the opportunity set but as a result the benefits from diversification rely increasingly on investment in emerging markets

stability and centrality of legislative choice in the spatial context majority rule spatial voting games lacking a core still always present a near core outcome more commonly known as the copeland winner this is the alternative that defeats or ties the greatest number of alternatives in the space previous research has not tested the copeland winner as a solution concept for spatial voting games without a core lacking a way to calculate where the copeland winner was with an infinite number of alternatives we provide a straightforward algorithm to find the copeland winner and show that it corresponds well to experimental outcomes in an important set of experimental legislative voting games we also provide an intuitive motivation for why legislative outcomes in the spatial context may be expected to lie close to the copeland winner finally we show a connection between the copeland winner and the shapley value and provide a simple but powerful algorithm to calculate the copeland scores of all points in the space in terms of the modified power values of each of the voters and their locations in the space

the rise of sector effects in major equity markets historically country effects have been dominant in explaining variations in global stock returns even in the developed markets and investors have segmented their allocations accordingly we set out to investigate whether this situation still prevails we found a significant shift in the relative importance of national and economic influences in the stock returns of the world s largest equity markets in these markets the impact of industrial sector effects is now roughly equal to that of country effects in addition to supporting the notion of increasing global capital market integration these findings suggest that country based approaches to global investment management may be losing their effectiveness

international asset allocations and capital flows the benchmark effect this paper studies channels through which well known benchmark indexes impact asset allocations and capital flows across countries the study uses unique monthly micro level data of benchmark compositions and mutual fund investments during 1996 2012 benchmarks have important effects on equity and bond mutual fund portfolios across funds with different degrees of activism benchmarks explain on average around 70 percent of country allocations and have significant impact even on active funds benchmark effects are important after controlling for industry macroeconomic and country specific time varying effects reverse causality does not drive the results exogenous pre announced changes in benchmarks result in movements in asset allocations mostly when these changes are implemented not when announced by impacting country allocations benchmarks affect capital flows across countries through direct and indirect channels including contagion they explain apparently counterintuitive movements in capital flows generating outflows from countries when upgraded and with large market capitalization and better relative performance

on the structure of analyst research portfolios and forecast accuracy this study provides insights into the forces and constraints that shape analyst research coverage along country and sector dimensions and the impact of the structure of an analyst s portfolio on forecast accuracy we find that analyst specialization by country and sector is sensitive to the extent to which firms within a country or sector and firms across country sectors are exposed to common economic forces the potential for revenue generation and broker culture our tests indicate that existing research on the relation between analyst portfolio structure and forecast accuracy may suffer from an endogeneity bias we use our analysis of analyst specialization to develop controls for this bias once we employ these controls we find that country diversification is associated with superior forecast accuracy however the relation between sector diversification and forecast accuracy is context specific specifically sector diversification enhances forecast accuracy in an international context while it detracts from forecast accuracy in a domestic u s context

stock market synchronization and monetary integration abstract this paper focuses on the relationship between stock market comovements and monetary integration a panel specification is used to explain bilateral stock market return correlations between fifteen developed economies over the period 1975 2006 time fixed effects are included to capture global shocks and we also examine the role of bilateral trade linkages and international financial integration monetary integration leads to stronger stock market synchronization both through the elimination of exchange rate volatility and through the common monetary policy and the convergence of inflation expectations trade and financial integration also contribute to higher stock market return comovements

job creation through infrastructure investment in the middle east and north africa in the next 10 years or so the infrastructure sector has the potential to generate significant employment this paper estimates annual job creation of about 2 0 million in direct jobs and 2 5 million in direct indirect and induced infrastructure related jobs just by meeting the infrastructure investment needs of about 6 9 percent of gross domestic product about us 106 billion for the middle east and north africa region on average the breakdown in expected needs is 11 percent in developing oil exporters 6 percent in oil importing countries and 5 percent in the gulf cooperation council oil exporters needs are particularly high in electricity and roads while important infrastructure job creation will not resolve the region s unemployment problem alone and its job creation potential varies greatly across countries moreover the current ability to finance and hence meet the infrastructure needs varies significantly across countries oil importers are likely to fall short under business as usual scenarios in a region in which the public sector is the main source of infrastructure financing fiscal choices will thus matter to job creation through infrastructure but there are more challenges including the governance of job creation and the proper targeting and costing of subsidies for job creation and the re training programs needed managing expectations will also matter as infrastructure jobs will help but will not solve the region s unemployment and underemployment problems

factor decomposition and diversification in european corporate bond markets in this paper we present an analysis of diversification strategies on portfolios of european corporate bonds from the perspective of a us based investor we study whether mean variance diversification strategies change as a result of the introduction of the european economic and monetary union emu using a comprehensive and unique data set of european corporate bonds we show that country factors are more important than industry factors to describe the cross section of european corporate bonds in particular we find that in the post emu period country factors remain important

global market integration an alternative measure and its application global markets seem to be increasingly integrated but there is no well accepted measure of integration we show that the correlation across markets is a poor measure perfectly integrated markets can exhibit weak correlation we derive a new integration measure based on the explanatory power of a multi factor model and use it empirically to investigate recent trends in global integration for most countries there has been a marked increase in measured integration over the past three decades but this is not indicated by correlations among country indexes

correlation risk and optimal portfolio choice we develop a new framework for multivariate intertemporal portfolio choice that allows us to derive optimal portfolio implications for economies in which the de gree of correlation across industries countries or asset classes is stochastic optimal portfolios include distinct hedging components against both stochastic volatility and correlation risk we find that the hedging demand is typically larger than in univari ate models and it includes an economically significant covariance hedging compo nent which tends to increase with the persistence of variance covariance shocks the strength of leverage effects the dimension of the investment opportunity set and the presence of portfolio constraints this paper develops a new multivariate modeling framework for intertempo ral portfolio choice under a stochastic variance covariance matrix we consider an incomplete market economy in which stochastic volatilities and stochastic correlations follow a multivariate diffusion process in this setting volatili ties and correlations are conditionally correlated with returns and optimal portfolio strategies include distinct hedging components against volatility and correlation risk we solve the optimal portfolio problem and provide simple closed form solutions that allow us to study the volatility and covariance hedg ing demands in realistic asset allocation settings we document the importance of modeling the multivariate nature of second moments especially in the con text of optimal asset allocation and find that the optimal hedging demand can be significantly different from the one implied by more common models with constant correlations or single factor stochastic volatility an important thread within the asset pricing literature has documented the characteristics of the time variation in the covariance matrix of asset

when in peril retrench testing the portfolio channel of contagion abstract the impact of past gains and losses on international investors risk aversion is an important factor in the propagation of financial shocks across countries we first present a stylized model illustrating how changes in investors risk aversion affect portfolio decisions and stock prices we then examine empirically the behavior of international mutual funds when funds returns are below average they reduce their exposure to countries in which they were overweight and vice versa an index of financial interdependence that reflects the extent to which countries share overexposed funds helps explain the pattern of stock market comovement across countries and the pattern of contagion during crises

national versus global influences on equity returns simple factor models of worldwide equity returns are used to explore the level and trend in international capital market integration global influences and national influences are of roughly equal importance in explaining the common movements in equity returns significant evidence indicates a trend toward increasing integration within the european union but not worldwide

economic integration and country allocation in europe the impact of european integration at the company and macro levels on correlations between stock market returns is analyzed a new procedure based on randomization methodology is introduced to test for the absence of country systematic differences in the return patterns of two stock markets the results indicate that stock market integration in europe is not yet complete but the comovement of european markets has increased substantially and is likely to continue to grow therefore top down managers of european equity portfolios need to look for a new strategy other than country based allocation

time diversification definitions and some closed form solutions abstract we establish general conditions under which younger investors should invest a larger proportion of their wealth in risky assets than older ones in the finite horizon dynamic setting we show that such phenomenon known as time diversification can occur in the presence of human wealth guaranteed consumption or mean reverting stock returns we formalize two alternative notions of time diversification commonly confounded in the literature analytic solutions are provided for both time series and cross sectional forms of time diversification to our best knowledge this paper is the first to solve in closed form the hedging demand for a cara investor with inter temporal consumption and a finite horizon facing mean reverting expected returns our results indicate that horizon can have a significant effect on the portfolio demand of a cara investor due to inter temporal hedging

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

pricing of domestic versus multinational companies world financial markets are becoming integrated hence global factors rather than domestic factors should dominate the pricing of stocks all the empirical studies published until the mid 1990s however reported that stock prices respond primarily to domestic factors in other words the pricing of a company s stock is driven predominantly by the primary location of its stock listing rather than by the nature and geographical breakdown of its activities we challenge this vision of international market pricing we have found that stock pricing at least for non u s companies is strongly influenced by the extent of the company s nondomestic activities this finding has implications for the organization of global equity research departments and for the structure of the investment process

international diversification a copula approach abstract the viability of international diversification involves balancing benefits and costs this balance hinges on the degree of asset dependence in light of theoretical research linking diversification and dependence we examine international diversification using two measures of dependence correlations and copulas we document several findings first dependence has increased over time second we find evidence of asymmetric dependence or downside risk in latin america but less in the g5 the results indicate very little downside risk in east asia third east asian and latin american returns exhibit some correlation complexity interestingly the regions with maximal dependence or worst diversification do not command large returns our results suggest international limits to diversification they are also consistent with a possible tradeoff between international diversification and systemic risk

have world country and industry risks changed over time an investigation of the volatility of developed stock markets this paper uses a volatility decomposition method to study the time series behavior of equity volatility at the world country and local industry levels between 1974 and 2001 there is no noticeable long term trend in any of the volatility measures then in the 1990s there is a sharp increase in local industry volatility compared to market and country volatility thus correlations among local industries have declined more assets are needed to achieve a given level of diversification and there is more of a penalty for not being well diversified by industry local industry volatility leads the other volatility measures

the cost of capital in international financial markets local or global abstract this paper analyzes to what extent international and domestic asset pricing models lead to a different estimate of the cost of capital for an individual firm under the maintained assumption of perfect international financial integration we distinguish between i the multifactor solnik sercu icapm including both the global market portfolio and exchange rate risk premia and ii the single factor domestic capm we use a sample of 3 293 stocks from nine countries in the period 1980 1999 the domestic capm yields a significantly different estimate of the cost of capital from the multifactor icapm for only five percent of the firms in our sample we attribute the close correspondence between local and global pricing to strong country factors in individual stock returns which are probably due to lack of real integration our results reinforce the home bias puzzle

institutions and individuals at the turn of the year this article evaluates the tax loss selling hypothesis against the window dressing hypothesis as explanations for turn of the year anomalies we examine differences between securities dominated by individual investors versus those dominated by institutional investors and find that the effect is more pervasive in the former controlling for capitalization we find that in early january late december stocks with greater individual investor interest outperform underperform stocks with greater institutional investor interest these results hold for both stocks that previously appreciated in value and stocks that previously depreciated in value the results are most consistent with the tax loss selling hypothesis as an explanation for the turn of the year effect

the relative importance of common factors across the european equity markets abstract in this paper we try to shed additional light on the question of integration or segmentation of european equity markets by studying the statistical relevance of some intuitively appealing international factors of return the relevance of these factors is also investigated through time in order to evaluate a possible increase in market integration over the recent past

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

the dark side of global integration increasing tail dependence abstract we measure stock market coexceedances using the methodology of cappiello gerard and manganelli 2005 ecb working paper 501 this method enables us to measure comovement at each point of the return distribution first we construct annual coexceedance probabilities for both lower and upper tail return quantiles using daily data from 1974 2006 next we explain these probabilities in a panel gravity model framework results show that macroeconomic variables asymmetrically impact stock market comovement across the return distribution financial liberalization significantly increases left tail comovement whereas trade integration significantly increases comovement across all quantiles decreasing exchange rate volatility results in increasing lower tail comovement the introduction of the euro increases comovement across the entire return distribution thereby significantly reducing the benefits of portfolio diversification within the euro area

brand dilution and the breakdown of political parties in latin america why would a national political party that has been competitive for decades collapse overnight in recent years parties across latin america went from being major contenders for executive office to electoral irrelevance over the course of a single electoral cycle the author develops an explanation that highlights the impact of elite actions on voter behavior during the 1980s and 1990s leaders across the region implemented policies that were inconsistent with their traditional party brand provoked internal party conflicts and formed strange bedfellow alliances with traditional rivals these actions diluted the brands of their parties eroding voters partisan attachments without the assured support of partisans parties become more susceptible to retrospective voting voters who now had no party attachments deserted incumbent parties when they performed poorly the author tests this interactive hypothesis using matched comparisons of six party election cases from argentina and venezuela

information transmission between the nasdaq and asian second board markets abstract in the 1980s and early 1990s the nasdaq s success helped to prompt singapore sesdaq japan jasdaq taiwan taisdaq and south korea kosdaq to set up or formalize their own second board markets in 1999 malaysia mesdaq and hong kong gem followed suit given the growing importance of these second board markets we examine whether there is any evidence of spillovers from nasdaq returns and volatilities to asian second board market returns and volatilities after controlling for spillovers from the nyse and whether these cross country spillovers are strong relative to domestic spillovers from the corresponding main board markets we employ egarch models dynamic causality tests and var based forecast error decompositions using daily data of a recent sample period that includes the asian financial crisis of 1997 and continues until april 20 2001 there is strong evidence of lagged returns and volatility spillovers from the nasdaq market to the asian second board markets when we exclude contemporaneous main board market returns there is also strong evidence of contemporaneous and lagged returns and volatility spillovers from the local main board markets to the corresponding second board markets however even in the presence of contemporaneous main board market returns there are substantial spillovers from the lagged nasdaq returns and volatilities to asian second board market returns and volatilities these findings are not sensitive to whether we use us dollar based data or local currency based data given the difference in the trading hours between the nasdaq and asian stock markets we use available intra day return data and canadian return data the findings seem quite robust there is substantial information spillover from the nasdaq to the asian and canadian second board markets these findings indicate the existence of a substantial cross country industry effect or meteor shower effect as well as a domestic market effect or heat wave effect and imply that both country diversification and industry diversification are important

dynamics and causality in industry specific volatility abstract this paper presents comprehensive empirical evidence on the dynamics and causality within 30 us industry specific volatilities during july 1963 and june 2008 we find that linear trends are present in 17 of the 30 industry volatilities granger causality tests reveal that the industry of business supplies and the industry of finance are the most important lead indicators of industry volatilities to uncover contemporaneous causal relationships in the market we implement an emerging data driven method of directed acyclic graphs the results suggest that volatility shocks originating from business supplies machinery and consumer goods industries are sources of risks that affect most other industries by contrast volatilities in the two traditionally important industries oil and autos do not appear to have a substantial influence on other large industries in the contemporaneous time finally business equipment and services both containing information technology components are the most important driving forces of the industry volatility surge in the late 1990s

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

mean variance convergence around the world abstract in this paper we show i that the risk return characteristics of our sample of 17 developed stock markets of the world have converged significantly toward each other during our study period 1974 2007 and ii that this international convergence in risk return characteristics is driven mainly by the declining country effect rather than the rising industry effect suggesting that the convergence is associated with international market integration specifically we first compute the risk return distance among international stock markets based on the euclidean distance and find that the distance thus computed has been decreasing significantly over time implying a mean variance convergence in particular the average risk return distance has decreased by about 50 over our sample period we also document that the risk return characteristics of our sample of 14 emerging markets have been converging rapidly toward those of developed markets in recent years this development notwithstanding emerging markets still remain as a distinct asset class lastly we show that the convergence in risk return characteristics has exerted a negative impact on the efficiency of international investment during our sample period

what have we learned from three decades of research on the productivity of public capital the last three decades have witnessed a great deal of research effort devoted to measuring the private output elasticity of public capital the wide range of available estimates have precluded any consensus so far however this paper reconciles the empirical findings of the literature by quantitatively analyzing a sample of 578 estimates collected from 68 studies for the 1983 2008 period using meta regression analysis we show how study design characteristics and publication bias can explain a large fraction of the variation across estimates we find a short run output elasticity of public capital supplied at the central government level of 0 083 which increases to 0 122 in the long run if in addition only core infrastructure at a regional local level of government is considered these estimates are almost doubled the average output elasticity of public capital amounts to 0 106 our results suggest that public capital is undersupplied in oecd economies