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

sealed bids sunk costs and the process of competition how do firms recover precontract costs for example suppose 10 firms compete in a sealed bid auction for the right to explore and develop an offshore oil field each spends 500 000 to estimate the value of the field and to prepare its bid suppose this investigation reveals that the tract is worth approximately 20 million if sunk costs do not matter competition dictates that the winner must bid 20 million but if the winner is to recover its prebid costs the maximum offer can be only 19 5 million furthermore long run industry equilibrium considerations suggest that the highest bid will be only 15 million 20 million minus the total bid preparation costs of 5 million if competition forces firms to charge marginal cost why do firms ever invest in resources which become sunk in some industries inframarginal rents can be used to recover these costs however the example above as well as many others involves an all or none deci

equilibrium in auctions with entry the authors model entry incentives in auctions with risk neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic the presence of too many potential bidders raises coordination costs that detract from welfare the authors show that the seller and society can benefit from policies that reduce market thickness i e the relative abundance of buyers their analysis extends well known revenue equivalence and ranking theorems but also demonstrates that variations in the auction environment affect optimal policies e g reservation prices in ways not anticipated by models that ignore entry copyright 1994 by american economic association

tracing value added and double counting in gross exports comment in a recent contribution to the aer koopman wang and wei 2014 proposed a decomposition of a country s gross exports into value added components and double counted terms it is motivated by complex manipulation of basic accounting identities in this comment we provide an alternative framework based on hypothetical extraction this parsimonious approach provides a clear definition of domestic value added in exports and has a natural extension into decompositions of bilateral export flows

the travels of a bank deposit in turbulent times the importance of deposit insurance design for cross border deposits we examine the impact of the existence on an explicit deposit insurance di scheme and its design features on bilateral cross border deposits cbd in a gravity model setting we find that both the absolute quality of a country s di and its relative quality vis a vis other countries di generally affect depositor behavior however during systemic banking crises cross border depositors primarily seek countries with the best di schemes similarly during the 2008 2009 great financial crisis the emergency actions taken by the governments which supply and maintain these safe havens have led to substantial relocations of cbd jel f34 g18

global value chain perspective of us china trade and employment employment impact of trade is an issue of long debate recent literature seems to focus on partial equilibrium analysis of the jobs destruction in the us due to import competition from low cost countries particularly from china however as noted in world investment report 2011 wir 2012 indirect employment generated by trade can be substantial in addition to jobs directly generated by trade to which end a general equilibrium model is more relevant just as in a relay game it makes little sense to award or punish only the last runner in this paper a global value chain approach is adopted to examine the effects of the us china trade on employment by using a recently constructed world input output data it is made possible to account for jobs created along the value chain process it is found that china s exports to the us and to the world had created more job opportunities for its trade partners than any other countries in the world further china s exports to the us and to the world tended to generate more employment opportunities for the us services sector while us exports created more manufacturing jobs for the chinese workers finally in both countries exports the typical value chain products such as electrical and optical equipment were the most effective creators of jobs for both countries in line with recent work of global value chains our work sheds light on the employment effects of interconnected trade and provides an alternative interpretation for the impact of the us china trade on employment

risk sharing market imperfections asset prices evidence from china s stock market liberalization abstract we examine the roles of risk sharing and other factors in stock price revaluation during a recent liberalization episode in china consistent with the theoretical prediction that liberalizations reduce systematic risk we find that risk sharing explains approximately one fourth of the price revaluation of investible stocks during the eight month window between reform announcement and implementation the firm specific information generated by the reform is more efficiently priced into stocks that have a higher degree of market liquidity information transparency and informed trading

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

awarding monopoly franchises the authors analyze how to award a monopoly franchise when the objective is to maximize expected consumers surplus net of transfer payments to the producer potential producers initially possess independent private information about uncertain production costs only the chosen producer subsequently observes realized production costs after awarding the franchise to the producer with the lowest expected costs prices are optimally set above realized marginal cost these ex post distortions foster more competitive bidding ex ante the distortions for any bid cost pair are invariant to the number of bidders n though expected distortions and profits decline with n copyright 1987 by american economic association

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

the determinants of cross border equity flows abstract we explore a new panel data set on bilateral gross cross border equity flows between 14 countries 1989 1996 we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions gross transaction flows depend on market size in source and destination country as well as trading costs in which both information and the transaction technology play a role distance proxies some information costs and other variables explicitly represent information transmission an information asymmetry between domestic and foreign investors and the efficiency of transactions the geography of information is the main determinant of the pattern of international transactions while there is weak support in our data for the diversification motive once we control for the informational friction we broaden the scope of our results by presenting some evidence linking the results on equity transactions to equity holdings

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

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

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

european product market integration after the euro using a detailed data set of prices of consumer goods in european cities from 1990 to spring 2003 we investigate the question of whether the introduction of the euro in january 1999 increased integration of consumer markets as reflected by consumer prices in fact we find no tendency for prices to converge after january 1999 this finding holds even when we control for a number of factors that might affect price dispersion on the other hand we find that there has been a significant reduction in price dispersion throughout the decade of the 1990s suggesting that efforts to reduce economic barriers initiated early in the decade may have in fact had the effect of significantly increasing the integration of consumer markets charles engel and john h rogers

organizational design competition and financial exchanges we investigate the incentives for vertical and horizontal integration in the financial securities service industry in a model with two exchanges and two central securities depositories csds we find that decentralized decisions might lead to privately and socially inferior industry equilibria with vertical integration of both csds with their respective exchanges allowing for horizontal integration of csds avoids privately inferior industry equilibria however we observe too little horizontal integration from the social perspective we link our results to recent regulatory and institutional developments such as the emergence of multilateral trading facilities over the counter regulation and financial harmonization

the euro and corporate valuations in this paper we study the changes in corporate valuations induced by the adoption of the euro as the common currency in europe we use corporate level data from seventeen european countries of which eleven adopted the euro we show that the introduction of the euro has increased tobin s q ratios by 17 1 in the euro area countries that previously had weak currencies part of the increase in corporate valuations is explained by the decrease in interest rates and by the decrease in the cost of equity the increases in tobin s q are larger for firms that would be harmed by currency devaluations the author 2008 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

measuring european financial integration in this paper we present a set of specific measures to quantify the state and evolution of financial integration in the euro area five key markets are considered namely the money corporate bond government bond credit and equity markets building upon the law of one price we have developed two types of indicators that can be broadly categorized as price based and news based measures we have complemented these measures by a number of quantity based indicators mainly related to the evolution of the home bias results indicate that the unsecured money market is fully integrated while integration is reasonably high in the government and corporate bond markets as well as in the equity markets the credit market is among the least integrated especially in the short term segment

economic effects of currency unions we develop a new instrumental variable iv approach to estimate the effects of different exchange rate regimes on bilateral outcomes the basic idea is that the characteristics of the exchange rate between two countries are partially related to the independent decisions of these countries to peg explicitly or de facto to a third currency notably that of a main anchor this component of the exchange rate regime can be used as an iv in regressions of bilateral outcomes we apply the methodology to study the economic effects of currency unions the likelihood that two countries independently adopt the currency of the same anchor country is used as an instrument for whether they share a common currency we find that sharing a common currency enhances trade increases price comovements and decreases the comovement of real gross domestic product shocks

emu and european stock market integration the launch of the single currency in europe in january 1999 was preceded by a period of regulatory harmonization convergence in bond yields and inflation rates and strict fiscal policy across the eurozone countries we examine whether the 1990s also were characterized by increased stock market integration the results indicate that as forward interest differentials benchmarked against germany and inflation differentials benchmarked against the three best performing states shrank toward zero stock markets converged toward full integration the united kingdom a country that chose not to enter the eurozone shows no such increase in stock market integration

the geography of trade in goods and asset holdings gravity models have been widely used to describe bilateral trade in goods portes and rey portes r rey h 2005 the determinants of cross border equity flows journal of international economics 65 2 269 296 applied this framework to cross border equity flows and found that distance which proxies information asymmetries is a surprisingly very large barrier to cross border asset trade we adopt a different point of view and explore the complementarity between bilateral trade in goods and bilateral asset holdings in a simultaneous gravity equations framework providing different instruments for both endogenous variables we show that a 10 increase in bilateral trade raises bilateral asset holdings by 6 to 7 the reverse causality is also significant albeit smaller controlling for trade the impact of distance on asset holdings is drastically reduced keywords gravity models international finance international trade simultaneous equations

currency unions and trade how large is the treatment effect currency unions and trade what can the data say the impact of a common currency on trade can be grossly mismeasured if countries that belong to currency unions are systematically different from those that do not and if the relationship between trade and its observable determinants is complex i argue that such complications are plausible and likely to distort the empirical results of a recent economic policy paper by andrew rose issue 30 2000 pp 7 45 using techniques designed to be robust in this situation i find that the effects of common currency on international trade are considerably less dramatic and much less precisely estimated torsten persson i have always maintained that the measured effect of a single currency on trade appears implausibly large but i am not convinced by torsten persson s diagnosis and proposed solution i apply a variety of estimation techniques to a new larger data set where many more instances of currency union creation and abandonment make it possible to rely on time series as well as cross sectional evidence the results are similar to my earlier ones the effect of a single currency on trade is large andrew rose

is full banking integration desirable abstract we analyze the links between banking integration and economic development for a sample of oecd countries we measure banking integration considering indicators that merge not only openness but also connectedness with other banking systems we plug these indicators into income regressions also controlling for other relevant variables considered by the literature in contrast to previous initiatives this second stage explicitly takes into account the differing levels of economic development of the countries in our sample since the benefits of enhanced banking integration might not be generalizable to this end we implement quantile regression also considering the presence of endogenous regressors results show that bank connectedness is more important for economic development than bank openness but the combined effect i e banking integration overall is positive and significant the quantile regression models used in the second stage show that the effects are stronger for the poorest economies

u s equity and commodity futures markets hedging or financialization abstract in this paper we investigate the hedging versus the financialization nature of commodity futures vis a vis the equity market using a arma filter based correlation approach our results suggest that while gold futures are typically seen as a hedge against unfavorable fluctuations in the stock market the majority of commodity futures appears to be treated as a separate asset class in line with their increasing financialization our results are robust to the presence of inflation highlight the hedging role played by fuel energy commodity futures in the nineties and reveal that the commodity financialization boosted since the 2000s we also show that gold futures are partially a safe haven for equity investments in the short term but not in the mid term finally we uncover some hedging financialization of crude oil futures associated to global demand oil supply shocks

capital control liberalization and stock market development the authors address two questions what happens to stock market size liquidity volatility and integration with world capital markets after capital controls are liberalized and what is the relationship between those indicators of stock market development and regulations about information disclosure accounting standards and investor protection an analysis of data on stock markets in 16 developing countries suggests the following a stock markets become larger more liquid more integrated internationally and more volatile after controls on capital and dividend flows are liberalized b easy access to information about firms is positively associated with the size and liquidity of stock markets and c countries that officially establish internationally accepted accounting standards and laws to protect investors do not have substantially better functioning stock markets than countries that do not adopt those official standards

sales taxes and internet commerce we estimate the sensitivity of internet retail purchasing to sales taxes using ebay data our first approach exploits the fact that a seller s location and therefore the applicable tax rate is revealed only after a buyer has expressed interest in an item we document how adverse tax surprises reduce the likelihood of purchase and shift subsequent purchases toward out of state sellers we then use more aggregated data to estimate that every one percentage point increase in a state s sales tax increases online purchases by state residents by almost 2 percent while decreasing their online purchases from state retailers by 3 4 percent jel h71 l81 l86

what lies beneath the euro s effect on financial integration currency risk legal harmonization or trade abstract although recent research shows that the euro has spurred cross border financial integration the exact mechanisms remain unknown we investigate the underlying channels of the euro s effect on financial integration using data on bilateral banking linkages among twenty industrial countries in the past thirty years we also construct a dataset that records the timing of legislative regulatory harmonization policies in financial services across the european union we find that the euro s impact on financial integration is primarily driven by eliminating the currency risk legislative regulatory convergence has also contributed to the spur of cross border financial transactions trade in goods while highly correlated with bilateral financial activities does not play a key role in explaining the euro s positive effect on financial integration

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

optimal information disclosure in auctions and the handicap auction we analyze a situation where a monopolist is selling an indivisible good to risk neutral buyers who only have an estimate of their private valuations the seller can release without observing certain additional signals that affect the buyers valuations our main result is that in the expected revenue maximizing mechanism the seller makes available all the information that she can and her expected revenue is the same as it would be if she could observe the part of the information that is new to the buyers we also show that this mechanism can be implemented by what we call a handicap auction in interesting applications in the first round of this auction each buyer picks a price premium from a menu offered by the seller a smaller premium costs more then the seller releases the additional signals in the second round the buyers bid in a second price auction where the winner pays the sum of his premium and the second highest non negative bid in the case of a single buyer this mechanism simplifies to a menu of european call options