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I examine a large set of 132 cross-sectional anomalies in international equity markets. While many of the significant U.S. anomalies replicate in equally weighted portfolios, only few survive when mitigating the impact of tiny stocks, accounting for multiple testing, and using factor models to adjust for expected returns. Accounting for the former two, only 15 anomalies yield significant long--short returns in the ex-U.S. world cross-section. Most of these are value anomalies. Factor models hardly seem necessary for Japan and the Middle East. In other international markets, the best U.S. factor models help shrink the cross-sections further.

We propose an infinitely repeated game of tax competition with an endogenous capital supply. Our results show that the larger the capital supply elasticity to interest rates, the easier it is for interregional tax coordination within a country to be achieved. The capital supply elasticity is lower when countries are less integrated into the international capital market, and vice versa. Thus, our finding suggests that the regions in the country with a lower (higher) degree of integration in the global market are less (more) likely to achieve tax coordination.

This study utilizes the extreme value theory (EVT) approach to compare the performance of a wide variety of range-based volatility estimators in the analysis of causality in risk between emerging and developed markets. The AR(1)-GARCH(1, 1) model with t -distribution is used as a benchmark. Regulator and firm loss functions are used to select the best volatility model. Two tests of causality in risk are used in our empirical study. The AR-GARCH model with EVT outperforms the other approaches in the case of huge risk. Among the most likely risk-taking markets are Standard & Poor’s 500, CAC 40, Nikkei 225, Nasdaq and FTSE 100.

This paper presents and analyzes a simple banking model in which banks have access to international capital markets and domestic asset markets. The model generates two types of equilibria: a no-default equilibrium and a mixed equilibrium. In the no-default equilibrium, all banks are symmetric and always solvent, while in the mixed equilibrium, some banks can be internationally illiquid and default simultaneously. The latter equilibrium captures the basic features of banking crises after financial liberalization in emerging market economies. In this case, a large capital inflow leads to high asset-price volatility and magnifies a banking crisis. The effects of various public policies are also examined.

We use a novel continuous-time Weibull model (without and) with a change-point in the duration dependence parameter to investigate the duration of the exit and re-entry of sovereigns to international capital markets. Relying on annual data for a large panel of countries over the period 1970-2011, we find that, as the reputation of debtor countries as good (bad) borrowers solidifies over time, those episodes are more likely to end - i.e. the "legacy of time". Debtor countries can take advantage of the "benefit of doubt" of creditors during short exit spells. However, when exits are long and the reputation as a bad borrower emerges, no more "complacency" makes it more difficult for them to borrow again in international capital markets - i.e. the "tyranny of time". We also find that: (i) government stability and multilateral financial assistance play a crucial role; (ii) the dynamics of the duration of exit (re-entry) spells is robust to the presence of default episodes, the default length and the haircut size; and (iii) exit and re-entry have shortened over time.

This paper documents the use of derivatives by securitisation special purpose entities (SPEs), also known as financial vehicle corporations (FVCs), domiciled in Ireland using transaction-level data established by the European Market Infrastructure Regulation. We show that these entities primarily engaged in interest rate derivatives over the period of 2015–2017. We find that larger entities that already engage in international capital markets are more likely to have derivative exposures. We also show that entities sponsored by banks and non-bank financial institutions are relatively more likely to engage in derivative markets. The characteristics of these bank sponsors are important in determining SPEs’ engagement in derivative markets. SPEs’ heavy reliance on debt finance coupled with their strong interconnectedness with bank sponsors underscores the importance of continuous monitoring and macroprudential surveillance of their derivative activities.

Using a two-country dynamic optimization model, we investigate the impact of exchange risk, incomplete information and short sales constraints on international portfolio decisions around market closure. Using optimal control theory, we provide solutions and simulation results. Our model can be applied to solve several problems in financial economics in the presence of market closure, information asymmetry and short sales constraints.

This paper studies the impact of capital market distortions on misallocation, competition and aggregate productivity. Focusing on distortions in the access to international borrowing across firms, I show that a reduction in these distortions leads to an increase in aggregate productivity through two different channels. First, previously credit-constrained firms respond to better financing terms by increasing their investments in technology, a reallocation effect. Second, non-constrained firms also expand their investments in technology due to increased competition, a pro-competitive effect. I provide evidence for these two channels using firm-level census data around the deregulation of international financial flows in Hungary.

The paper reviews CGE models that have dealt with social security issues during the last two decades. After introducing the benchmark model from Auerbach and Kotlikoff (1987), we consider the impact of the demographic transition on international capital markets and national wages. Then the discussion focusses on optimal funding and optimal progressivity of social security and concludes with some possible directions for future research.

RESUMENLas crisis de deudas soberanas constituyen una de las grandes disfuncionalidades de la globalización financiera actual. La evolución de los mercados internacionales de crédito soberano agregó complejidad a los procesos de reestructuración de deudas soberanas. A diferencia de las bancarrotas empresarias, los incumplimientos de deudas soberanas tienen implicaciones macroeconómicas nacionales y globales de carácter sistémico. El enfoque contractual de reestructuración de deudas soberanas vigente puede ser cada vez menos potente en superar los problemas de acción colectiva. Sin embargo, ésta es la única opción viable en la actualidad. Las propuestas recientes por parte del International Capital Market Association (icma) pueden mejorar sustancialmente dicho enfoque. Aunque interesante como idea, la alternativa estatutaria es aún impractcable.AbstractSovereign debt crises constitute one of the most pressing shortcomings in the current state of financial globalization. The evolution of international sovereign credit markets has made sovereign debt restructuring processes more complex. Unlike in corporate bankruptcies, sovereign debt defaults entail systemic national and global macroeconomic implications. The current contractual approach to sovereign debt restructuring may become increasingly less effective in overcoming problems requiring collective action. However, this is the only viable option at present. Recent proposals from the International Capital Market Association (ICMA) could substantially improve this approach. Although interesting as an idea, the statutory alternative is still not feasible.

Por que los gobiernos se endeudan internacionalmente, tanto como para arriesgarse a quebrar? ?Por que permanecen fuera de los mercados financieros durante un tiempo despues del impago? Este documento desarrolla un modelo cuantitativo de impago soberano con costes de impago endogenos para proponer una respuesta nueva y unificada a estas preguntas. En el modelo, el gobierno tiene un incentivo para endeudarse en los mercados financieros internacionales debido a una diferencia entre la tasa de interes mundial y el rendimiento sobre el capital nacional, que surge de una friccion en el sector bancario interno. Dada la exposicion de los bancos a la deuda soberana, el impago soberano les causa perdidas, que se traducen en una crisis financiera. Al decidir sobre el reembolso de su deuda, el gobierno compara estos costes con la ventaja de no reembolsar a los inversores internacionales. Despues del impago, el pais solo vuelve a participar en los mercados financieros internacionales una vez que los bancos se han recuperado, porque solo entonces pueden de nuevo asignar eficientemente cada unidad marginal de inversion. La exclusion surge de manera endogena. El modelo puede generar niveles significativos de deuda interna y externa, spreads realistas, reducciones de credito interno y PIB cuantitativamente plausibles en episodios de impago, y periodos de exclusion del mercado financiero internacional posterior al impago de una duracion realista.

funding: Portuguese Foundation for Science and Technology-FCT (UID/GES/00407/2013 PTDC/IIM-FIN/2977/2014) and European Research Council We study the link between international stock return comovements and institutional investment. We test whether the rise of institutional ownership has increased cross-country correlations and decreased cross-industry correlations. Using stock-level institutional holdings across 45 countries during the 2001–2010 period, we find that industry and global factors are relatively more important the country factors in explaining stock return variation among stocks with higher institutional ownership. Industry diversification strategies are more beneficial than country diversification strategies for stocks with high institutional ownership. We show that cross-border portfolio investment is a powerful force of international capital market integration and convergence of asset prices. authorsversion published

We provide evidence that financial reforms (over 1976–2005) significantly affected exports, in particular, of industries with higher external capital dependence and low asset tangibility. The coverage of reforms is comprehensive, encompassing the banking sector, interest rates, equity and international capital markets. Our methodology improves upon existing studies by controlling for time-varying unobserved exporter characteristics and unobserved country-specific industry characteristics. We find significant effects of various reforms with diverse impacts by intensity. Further, event studies that incorporate possible anticipated and lagged effects of commencement of reform policies confirm the findings.

We hypothesize that exports of differentiated products, which entail greater upfront costs, increase more as financial reforms take place. We find strong and robust empirical support of this hypothesis with a comprehensive set of measures of reforms encompassing the banking sector, interest rates, equity and international capital markets.

This paper examines the co-movement of selected MENA region stock markets with the U.S. stock market and the regional co-movement among these markets over the period from June 2002 to June 2010. For this purpose, we apply the analysis of wavelet squared coherency with simulated confidence bounds. The methodology enables the simultaneous assessment of short term and long term stock market co-movement and detects change in market relationships over time. The evidence suggests a modest degree of co-movement of stock returns between S&P 500 and MENA stock markets at higher frequencies, implying enhanced short term diversification gains. Dependencies with the U.S. stock market intensify toward the end of the stock return series, supporting the increasing trend toward international capital market co-movement. The evidence also shows a relatively high degree of co-movement among stock markets in the MENA region at lower frequencies across the entire sample, and these dependencies increase toward the end of the sample period.

Scholars historically believed that the market price data reported for Amsterdam markets were spot prices prior to 1747. Neal (The rise of financial capitalism: international capital markets in the Age of Reason. Cambridge University Press, Cambridge, 1990) provided econometric evidence that the prices were time. A newly constructed dataset, containing a much higher frequency of observations from Amsterdam markets, allows us to resolve this dispute. We provide conclusive evidence that the prices report were actually spot, as originally believed.

This article explores the effort, during the last decade, to develop a set of global standards and codes to govern international capital markets. I posit that, despite global capital market pressures, this effort should have limited success in low and middle-income countries. Drawing upon a historical institutionalist framework, I suggest that domestic political institutions, as well as interests, often will lead to the failure of governments to implement global codes and standards. After describing briefly the motivations for and substance of the standards and code project, I summarize trends in the national implementation of such standards. I then point to several instances of policy feedback, in which the existing domestic regulatory institutions in middle-income countries rendered the adoption of new international rules difficult, technically as well as politically.

We investigate the role of information asymmetries and inflation hedging in shaping international equity portfolios. We confirm, in a multinational setting, Cooper and Kaplanis [Cooper, I.A., Kaplanis, E., 1994. Home bias in equity portfolios, inflation hedging and international capital market equilibrium. Review of Financial Studies 7 (1), 45–60] result of no inflation hedging motive driving investors’ behavior and find evidence of a crucial role for financial market development and trade linkages.

This article attempts to rationalize the validity of gravity variables to explain the degree of international consumption risk sharing. We find that for a panel of 54 countries during 1950–2000, variables such as distance, affluence, a common language and the type of legal system are relevant in explaining not only cross-country consumption and output correlations, but consumption risk sharing. Common law countries share consumption risks more than civil law countries. English speaking countries turn out to share consumption risks more than other language groups, and show significantly higher consumption risk sharing even within the group of common law countries.

From the mid-sixteenth to the early seventeenth century, Genoese bankers collected money from a variety of sources and lent it to the king of Spain. It was all made possible by the Bisenzone exchange fairs, which created an efficient financial network under Genoese control and permitted arbitrage among northern Italian financial markets. At Bisenzone, Genoese bankers raised money for these loans from a variety of sources, which reduced the risks of lending and funded the king's long-term obligations via short term loans. Bisenzone was in many ways an offshore capital market which operated on an international scale, or, in the language of the sixteenth century, a fair without a place—una fiera senza luogo.

By evaluating the Malaysian consumption patterns, this article measures capital mobility in Malaysia with three main trading countries, namely the United States, Japan and Singapore. The results indicate that Malaysia's national consumption was fully integrated with the United States over the period 1960–2000. Since the consumption models are based on a high degree of capital mobility, there is some evidence that this condition is met in the Malaysian data. This indicates that Malaysia exhibited a substantial amount of financial openness despite periodic exchange controls.

Investors globally prefer dividend-paying stocks over non-dividend-paying stocks more in declining than in advancing markets, even accounting for firm-level growth opportunities, size and risk effects. Dividend paying stocks outperform non-dividend paying stocks, from 0.63% (China) to 3.79% (Canada) more per-month in declining than in advancing markets. In declining markets, dividend paying firms outperform by more than any under-performance in advancing markets. The results are robust across dividend taxation regimes, legal environments, emerging and developed markets, periods prior to and after the 2008 global financial crisis, the exclusion of the dividend declaration month and in respect to segmented or integrated international capital markets.

This article reviews the main issues of regulating and supervising banks in emerging markets with a view toward evaluating the long-run options. Particular attention is paid to Latin America and East Asia. These economies face a severe policy commitment problem that leads to excessive bailouts and potential devaluation of claims of foreign investors. This exacerbates moral hazard and makes a case for importing external discipline (for example, acquiring foreign short-term debt). However, external discipline may come at the cost of excessive liquidation of entrepreneurial projects. The article reviews the tradeoffs imposed by external discipline and examines various proposed arrangements, such as narrow banking, foreign banks and foreign regulation, and the potential role for an international agency or international lender of last resort. Liberalization and integration of financial markets have been associated with an increase in capital movements and with the financial crises. In particular, surges in foreign short-term debt have been blamed for crisis episodes in emerging economies in Asia (Thailand, Indonesia, and the Republic of Korea) and Latin America (Mexico, Brazil, Ecuador, and Argentina), as well as in the periphery of Europe (Turkey). These crises have proved costly in terms of output. Several policy responses have been suggested. Among them have been the reduction of short-term debt, the development of stock markets, the improved regulation and supervision of domestic financial system, enhanced transparency requirements and market discipline, and the establishment of an international lender of last resort. A catalog of “solutions” has been proposed to take care of the problems of banking in emerging market economies including moving to a narrow bank system, building a currency union, and leaving banking in the hands of foreign banks and offshore institutions. This article identifies policy responses tailored to the needs of emerging market and developing economies. The question is whether the regulatory policies and

The risk of repudiation plays a central role in the size and nature of international capital flows. In this paper the author addresses the question of whether, in a world of international capital flows with risk of default, strategic externalities provide a rationale for regulation of international borrowing. The author models centralized arrangements of international debt in which only governments borrow and lend internationally and decentralized arrangements in which individuals have access to international markets. The author shows that a centralized setup allows more international risk sharing than a decentralized setup.

Since their opening up to international capital markets, the economies of Estonia, Latvia and Lithuania have experienced large and persistent capital inflows and trade deficits. This paper investigates whether a calibrated two-sector neoclassical growth model can explain the magnitudes and the timing of the trade flows in the Baltic countries. The model is calibrated for each of the three countries, which we simulate as small closed economies that suddenly open up to international trade and capital flows. The results show that the model can account for the observed magnitudes of the trade deficits in the 1995-2004 period. Introducing a real interest rate risk premium in the model increases its explanatory power. The model indicates that trade balances will turn positive in the Baltic states around 2010. (Copyright: Elsevier)

Leaders of commodity-exporting states will sometimes push exports even when world prices are declining, if export receipts allow access to international capital markets. This article demonstrates that such state-mediated ties between commodity and capital markets shaped the politics of foreign trade in tsarist, and then Soviet, Russia. It also refutes an alternate, group-centered explanation of the same historical cases proposed in Rogowski's Commerce and Coalitions, pointing out serious empirical errors and oversights. These empirical problems have methodological roots. Searching for universal "laws," rather than sometimes relevant "mechanisms," limits the consideration of counterhypotheses to those that apply to a whole universe of cases, rather than a subset of them. Because such counterhypotheses serve to determine which data are relevant, their exclusion weakens the empirical tests to which proposed laws are subjected. Thus, the ambition for generality may cause scholars to become inadvertently too generous to the theories they seek to test.

High growth, liquid Chilean firms have greater relative weights in U.S. equity portfolios, but the most important determinant of a firm's portfolio weight is whether it is listed on a U.S. exchange. Cross-listing does not, however, appear to have permanent benefits: Weights in U.S. portfolios of firms that cross-listed in the mid-1990s increased at the expense of firms that cross-listed earlier. Put another way, firms appear to be able to access international capital at the time of the cross-listing, but this access may well be short-lived.

Studying the implications of uncoordinated borrowing, the paper first looks at whether and when countries borrow too much in the aggregate. It then revisits the “original sin” debate, analyzing whether and when equity portfolio investment, international portfolio diversification, domestic currency denomination and longer maturities enhance borrowing countries’ access to international lending. The paper thereby relates a country’s level and quality of access to international capital markets to a variety of institutional features such as the level of domestic savings, their location, the extent of control rights held by political authorities, and the interests of dominant domestic political forces.

he idea of an East Asian economic zone, first proposed in the late 1980s, T showed few signs of becoming a reality through economic diplomacy alone. In 1997, however, capital markets treated East Asia as a distinct region, with contagion from Thailand sweeping first through Southeast and then Northeast Asia. As liquidity supply from international capital markets dried up, several currencies went into free fall, at times fluctuating wildly. Currency devaluations against the dollar also resulted in large changes in cross-rates against other East Asian currencies, straining regional trade relationships and serving as a conduit for contagion. Compared with Europe's currency crisis of 1992-1993, Asia's was much more chaotic, and the ensuing economic downturn was much deeper. This raises the question of whether a regional exchange rate mechanism modeled on Europe's would have permitted a less-turbulent adjustment of Asian currencies in 1997. Although there have been no moves in that direction so far,' the crisis did give rise to closer cooperation among Asian monetary authorities, the idea of an Asian Monetary Fund, and consideration of deeper regional economic ties. Exchange rate regimes are particular to the political and economic circumstances of their age. The international gold standard came into being because of the historical accident that gold was Britain's monetary standard when it emerged as the world's leading industrial, colonial, and trading power in the 1800s. Growth in trade made it convenient for other countries to adopt the British monetary standard, and the massive expansion of gold production from around 1850, following discoveries of gold in the United States and Australia, made it possible.2 Britain's stable balance of payments, an important factor anchoring the system

The network of international capital markets is modeled as a global communications system, where information flows in one channel and funds flow in the other. Based on the fundamental logic of the measurement of information (Reza, 1992) and on the standard assumptions of the Capital Asset Pricing Model (CAPM) (Shapiro, 1999), we demonstrate that these markets operate at very large losses. Global markets are far less efficient than long-established domestic capital markets of developed countries, which do relatively well in transmitting information and funds. Along with the integration of national capital markets into a more tightly knit international network, however, major improvements in efficiency can be expected. Integration, though, implies a need for some kind of global regulations to help standardize the flow of information and the routines of pricing risk. Standardization in turn can be expected to decrease risks and increase the efficiency of distributing funds. From an information-theoretical perspective the introduction of mutually accepted regulations is desired, since it would boost the capacity utilization of the distribution system as such. A better-utilized communications system will bring faster clearing international markets and cheaper funds.

This paper reviews the explanations and the consequences of the Asian crisis. Two major competing explanations are identified. These place the roots of the crisis either in the affected economies or within the international capital market. We locate these explanations within alternative paradigms about the effectiveness of market coordination. The consequences of the crisis are discussed in terms of the impact on unemployment and poverty, growth and trade. The role of the International Monetary Fund is also considered and its evaluation is shown to depend on which model of explanation is thought most plausible. A number of concluding comments complete the discussion.

This paper expands the recent empirical studies of international capital market integration in mainly three aspects. First, the study focuses on two Scandinavian markets, the Finnish and the Swedish, that are receiving more and more attention by international analysts in light of the ongoing European integration. For investors, these new markets offer interesting diversification opportunities. Secondly, the study covers a very long time span from January 1920 to December 1994. Thirdly, using a variety of approaches the paper clarifies previously published confusing results regarding the lead - lag structure between these markets. The results indicate that no evident cointegration or even fractional cointegration between the markets exist. An analysis of short-term dynamics indicates that virtually all shock impulses are absorbed in both markets within one month. Sub-period analyses reveal increasing instantaneous causality between the markets in the passage of time, whereas no meaningful Granger-causality...

This paper proposes a new way of investigating the international integration of capital markets. In a stochastic neoclassical growth model with representative agents, perfect international capital markets result in the divergence of per capita consumption across countries. If instead the countries lack representative-agent economies with unrestricted access to international capital markets, per capita consumption does not diverge. Divergence of per capita consumption cannot be rejected across the countries most likely to have had unrestricted access to international capital markets: Canada, the UK and the US. By contrast, divergence of per capita consumption is strongly rejected across nineteen other industrial countries. (JEL F02). © 1997 Elsevier Science Ltd.

This paper examines the impact of country risk on international portfolio investment, using alternative country risk proxies in the context of a two-factor model. Based on the Mann-Whitney-Wilcoxon test, we provide empirical evidence that international portfolios' returns contain significant country risk premiums. Specifically, we find that international portfolios provide annualized risk premiums that range from 9.4% to 26.8%. Apart from confirming the traditional wisdom that international diversification pays, the results also provide support for the notion that international capital markets are partially segmented. Our results are also unique in that risk premiums are measured in the context of the Markowitz portfolio selection model rather than the traditional asset pricing framework.

In a recent paper in the JIMF , Crowder (1994) claims that evidence that spot exchange rates are cointegrated and forward premiums are non-stationary implies international capital markets are not efficient. This note argues that the cointegration properties of spot exchange rates are independent of the efficiency or inefficiency of financial markets.

This paper analyses how the level of social protection is determined when its choice depends on political competition. First, this is done under autarky. Then the analysis is extended to take account of the existence of an international capital market. We show that social protection never increases under international competition and, in several circumstances, drastically decreases.

Weekly changes for the period 1980 to 1994 in six major stock indices (the US, Korea, Taiwan, Japan, Singapore and Hong Kong) and the World Index are examined. Also examined are the corresponding foreign exchange rates between the US and these five countries. Using spectral analysis, techniques of nonlinear dynamics and ordinary least squares regression, evidence of varying levels of market integration are documented. Some of the time series examined exhibit nonlinear dependencies.

Tests of covered interest parity (CIP) are prevalent in the economics and finance literature. These studies demonstrate that there does exist some profitable deviations of exchange rates and interest rates from the equilibrium implied by CIP. Unfortunately, no conclusions regarding market efficiency can be drawn from such evidence since efficient markets do not preclude profitable deviations, only the persistence of such deviations. This study uses impulse response analysis on the CIP equilibrium of daily exchange rates and interest rates in order to analyze the persistence of arbitrage profits. The results suggest that risk free profits persist longer that can be reconciled with market efficiency. JEL Classifications: F31, F41, C32 .

The relationship between stock returns in international capital markets has excited the curiosity of researchers for a long time. Two recent stimuli for this research have been the progressive integration of international capital markets and the globalization of investor portfolios with the concomitant need for effective portfolio diversification strategies. These stimuli have provided the impetus to understand the dynamics of stock prices across national boundaries. The development of increasingly sophisticated statistical techniques and the continued growth of data handling capabilities by ever more powerful computers have established an impressive record of literature which traverses from the simple and mundane to the exotic and esoteric. Most of the earlier literature on this topic only explores the contemporaneous or the lead/lag relationship among international stock markets and seldom questions the underlying sources of interdependence among international capital markets. Some recent papers, which are discussed a little later and which provide the motivation for this study, have begun to address this issue. The objective of this paper is to expand the knowledge of the relationship among international capital markets by examining both their correlations and sources of interdependence. To be specific, this study first examines the correlations (comovements) between six international stock markets, three from the Atlantic region (i.e., New York, London, and Frankfurt) and three from the Pacific region (i.e., Japan, Singapore, and Hong Kong), using stock price data between 1984 and 1989. Selecting three stock markets from each region allows us to examine interregional as well as intraregional correlations. The underlying cause of the comovements among the six international stock markets is then investigated by examining the international transmission of stock returns volatility. An understanding of the structure of interdependence and source of comovements among international capital markets has important implications for formulating international portfolio strategies and forecasting. The Generalized Autoregressive

We consider a risk-averse firm facing exchange rate and interest rate uncertainty. When international capital markets are accessible the separation property holds. However, these hedging instruments are not equivalent to creating missing interest rate futures markets.

This paper adds a construction sector to a dynamic dependent economy model, equipped with consumer tradeables and non-tradeables sectors. The model is used to study the response of the production structure, relative prices, and the trade balance to a favorable terms of trade shock. Under the benchmark assumptions of perfect intersectoral factor mobility, a perfect international capital market, and no adjustment costs, for realistic relative capital intensities the model predicts a boom in the construction and consumer non-tradeables sectors, a contraction of the tradeables sector, and no relative price changes. The implications of relaxing those benchmark assumptions are discussed separately.

Three main factors affect the dollar value of a foreign-currency-denominated bond-interest rate movements, foreign exchange rate movements and their interactions. Changes in a foreign bond's interest rate can be attributed to factors affecting the international capital markets as a whole ("global') and to elements specific to the particular foreign economy ("local'). Duration is an inadequate description of a foreign bond's price sensitivity to overall interest rate movements, because it ignores the significant differences in interest rate volatilities across markets.

This paper examines return predictability when the investor is uncertain about the right state variables. A novel feature of the model averaging approach used in this paper is to account for finite-sample bias of the coefficients in the predictive regressions. Drawing on an extensive international dataset, we find that interest-rate related variables are usually among the most prominent predictive variables, whereas valuation ratios perform rather poorly. Yet, predictability of market excess returns weakens substantially, once model uncertainty is accounted for. We document notable differences in the degree of in-sample and out-of-sample predictability across different stock markets. Overall, these findings suggest that return predictability is neither a uniform, nor a universal feature across international capital markets.

This essay concerns the real value of the $U.S. relative to the G-10. (i) What are the dynamics of the fundamental determinants of the real exchange rate and its steady state value? (ii) To what extent are the observed movements in the exchange rate from 1973 to 1988 due to the fundamentals? (iii) How integrated are international capital markets? (iv) How does the real exchange rate respond to (a) changes in the cyclically adjusted government budget deficit, and to (b) changes in the marginal efficiency of investment?

In this paper, we examine the rationale for dollar and euro pegging in Russia and the CIS. We consider macroeconomic stabilization and transaction costs for international trade as rationales for pegging to the euro. Dollarization of international assets and liabilities are examined as determinants of exchange rate stabilization against the dollar. The impact of network externalities from a common anchor for all CIS countries is explored. Tests on de facto exchange rate stabilization reveal that dollar pegging has been pervasive in the CIS. Journal of Comparative Economics 33 (3) (2005) 425–440.

The picture of the securities exchanges and financial sectors in CEE countries is still relatively unfavorable. The CEE securities exchanges - with the only exception of the Warsaw Stock Exchange - are, in comparison with their western counterparts, underdeveloped and less important for the domestic economies in general and for corporate finance in particular. The CEE securities exchanges are under pressure for several reasons and should change their form of (international) organization to ensure future success. Stronger international integration of the exchanges could also improve the integration of CEE companies into international capital markets.