Search

We examine the empirical performance of a spline-based, local volatility surface for the period 2000-2005. Our findings indicate that the proposed model outperforms the best-performing implied volatility--based model reported in [...]

Application of information technology to gain a competitive advantage is well known and often used by business firms in developed countries. A fairly recent technological development is use of the Internet to provide corporate financial information, that is, Internet financial reporting. The research question posited by this study is: Do investors value emerging market firms that attempt to reduce information asymmetry by using information technology? This study uses the efficient market hypothesis to test the effects of two economic events on the market returns of emerging markets firms that engage in Internet financial reporting. At the macro-economic level, the event date is defined as the date the country deregulated the telecommunications industry granting commercial access to Internet providers. At the micro-economic level, the event date is based on the firm's announcement of the launching of its website. This study offers empirical evidence of the longitudinal effects of Internet technology i.e., timely dissemination of financial information, on emerging markets. The analysis reveals positive dispersions in market price and volume around the event dates. Market performance of securities listed on emerging market stock exchanges does improve after commercialization of the Internet., INTRODUCTION The use of information technology for competitive advantage is well known and often applied by business firms. Using stock data for firms listed on the emerging market stock exchanges [...]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmacro.2007.08.012 Byline: Martin Uebele (a), Albrecht Ritschl (b) Keywords: Business cycle chronology; Imperial Germany; Spectral analysis; Efficient market hypothesis Abstract: Historical national account data are often plagued by quality problems, and rivaling series imply different business cycle chronologies. This problem is particularly grave for Germany before World War I [Burhop, C., Wolff, G.B., 2005. A compromise estimate of net national product and the business cycle in Germany 1851-1913. Journal of Economic History 65(3), 615-657]. We exploit the comovement between asset prices and various GNP estimates under the efficient market hypothesis to obtain an improved business cycle dating, and to decide between the various alternative national accounts series. We also examine the comovement between financial markets and various disaggregate indicators of real investment. Employing both time and frequency domain techniques, we find impressive comovement between the stock market, an estimate of the aggregate wage bill, and disaggregate evidence on real investment. Our findings confirm traditional business cycle chronologies for Germany and lead us to discard later, revisionist attempts to date the business cycle. Author Affiliation: (a) Department of Economics, University of MuEnster, Domplatz 20-22, 48143 MuEnster, Germany (b) Department of Economic History, London School of Economics, Houghton Street, London WC2 2AE, United Kingdom, and CEPR Article History: Received 13 March 2007; Accepted 17 August 2007

This study examines the capital structure of all the companies listed on the Nairobi Stock Exchange (NSE) and compares the sum of stock market activity against aggregate information for Kenya as a whole, to get a sense of the scale of its activity. We will attempt to differentiate between those companies that needed capital for expansion and those that did not. In respect of expanding companies we will attempt to identify how they financed their expansion. We will focus on three main categories of sources of finance: primary market transactions (that is, new share issues); organic growth (through the ploughing back of profits); and lastly, borrowing. In this way we will make an informed judgment of the way the NSE has contributed to the raising of capital and the development of the economy. Our findings indicate that although the company's listed in the NSE have registered an enormous growth during the period under review, much of this has been financed through borrowed capital and retained profits. We therefore conclude that the NSE has failed in its primary objective of helping investors to raise capital. Furthermore there is little evidence to suggest that the NSE has contributed to the economic development of Kenya., INTRODUCTION The objectives of any stock exchange include two interlinked concepts. Their primary market role is to facilitate the movement of capital from savers to investors. In process of the [...]

This paper studies whether recent international transparency initiatives affect information accuracy and dispersion. I show that the impact of these initiatives is limited because public disclosure crowds out private investments in information. I first develop a theoretical model of the incentive to invest in information and the impact of public disclosure. I then analyze stock market analysts' forecasts for thirty developing economies for the period 1990-2004. I find that disclosure standards enhance forecast accuracy directly but at the same time reduce the number of analysts per stock (proxy for private information investments). The net effect of disclosure standards thus ranges from weak to nonexistent. Keywords: Disclosure standards; Analyst forecast; Public information; Private information; International financial architecture JEL classification: F3; G1

We develop a sequential procedure to test the adequacy of jump-diffusion models for return distributions. We rely on intraday data and nonparametric volatility measures, along with a new jump detection technique and appropriate conditional moment tests, for assessing the import of jumps and leverage effects. A novel robust-to-jumps approach is utilized to alleviate microstructure frictions for realized volatility estimation. Size and power of the procedure are explored through Monte Carlo methods. Our empirical findings support the jump-diffusive representation for S&P500 futures returns but reveal it is critical to account for leverage effects and jumps to maintain the underlying semi-martingale assumption. JEL classification: C22; C15; C52; G10; C80 Keywords: High-frequency data; Realized volatility; Jump detection; Financial time sampling; Normality tests

The theories of Alan Greenspan and Ben Bernanke relating to the policies of the Federal Reserve over changes in stock prices and the behavior of stock markets are analyzed.

The stock return volatility of American stock markets during 1994-2004 period is assessed using price earnings ratio.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2006.08.006 Byline: BenoA[R]t Mercereau Abstract: We study the role of financial markets in the dynamics of the real exchange rate. To do so, we develop a model with stock markets, and we derive a closed-form solution for the real exchange rate. This solution stresses that a country's financial structure affects its real exchange rate, as well as the volatility of this exchange rate. We also contrast other implications of the model with the Balassa-Samuelson effect and with the prediction of traditional Keynesian models. Author Affiliation: International Monetary Fund, 700 19th Street, N.W., Washington, DC 20431, USA

Efficiency of idiosyncratic volatility in explaining security returns is discussed. Data pertaining to monthly stock returns and market values from listed companies of Germany and the United Kingdom have been utilized in the evaluation.

Empirical model of effects of fiscal restrictions on debt management patterns, correlation of macrovariables, and volatility of markets in 48 American States is presented.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2006.06.001 Byline: Delroy M. Hunter Abstract: I use ADRs to examine if the equity markets of Argentina, Chile, and Mexico have become internationally integrated in the post-liberalization period and, if not, whether direct and/or indirect barriers are the cause of segmentation. In addition, I assess the evolution of the level of integration over time to determine if these markets are converging to or diverging from integration. I find that these markets have not become integrated. More revealing is that there is no secular trend towards greater integration. In fact, the Brazilian and Mexican currency crises temporarily increased the level of segmentation of Argentina and Chile, and appear to have had a more persistent effect on the level of integration of Mexico, as this market has become increasingly segmented in the post-crisis period. It appears that both direct and indirect barriers are responsible for the segmentation. Author Affiliation: Department of Finance, College of Business Administration, University of South Florida, 4202 East Fowler Avenue BSN3403, Tampa, FL 33620-5500, USA

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2006.04.007 Byline: Eric Jondeau, Michael Rockinger Abstract: Modeling the dependency between stock market returns is a difficult task when returns follow a complicated dynamics. When returns are non-normal, it is often simply impossible to specify the multivariate distribution relating two or more return series. In this context, we propose a new methodology based on copula functions, which consists in estimating first the univariate distributions and then the joining distribution. In such a context, the dependency parameter can easily be rendered conditional and time varying. We apply this methodology to the daily returns of four major stock markets. Our results suggest that conditional dependency depends on past realizations for European market pairs only. For these markets, dependency is found to be more widely affected when returns move in the same direction than when they move in opposite directions. Modeling the dynamics of the dependency parameter also suggests that dependency is higher and more persistent between European stock markets. Author Affiliation: Swiss Finance Institute and University of Lausanne, Lausanne, Switzerland

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2005.11.012 Byline: AyAe Y. Evrensel (a), Ali M. Kutan (a)(b)(c)(d) Abstract: This paper expands on the work of Sarno and Taylor [1999. Hot money, accounting labels and the permanence of capital flows to developing countries: an empirical investigation. Journal of Development Economics 59, 337-364; Moral hazard, asset price bubbles, capital flows, and the East Asian crisis: the first tests. Journal of International Money and Finance 18, 637-657] by developing an IMF-induced creditor moral hazard framework in stock markets under alternative assumptions of asset price bubbles and domestic implicit guarantees. To do so, it employs IMF-related news associated with program negotiations and program approval. Using daily stock returns for Indonesia and Korea, we estimate the changes in stock returns in response to IMF-related news during the Asian crisis period. Some of the results regarding Korea and, to a lesser extent, Indonesia are consistent with the creditor moral hazard interpretation that assumes implicit guarantees and asset price bubbles. Author Affiliation: (a) Southern Illinois University Edwardsville, Edwardsville, IL 62026, USA (b) Center for European Integration Studies, Bonn, Germany (c) Emerging Markets Group, London, UK (d) William Davidson Institute, Michigan, USA

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2005.11.010 Byline: Dirk Baur (a), Robert C. Jung (b) Abstract: This study investigates the contemporaneous correlation and the spillover effects between the US and the German stock markets around the opening of the two markets. It is based on a newly compiled sample of intra-day data for the two blue chip indices, the Dow Jones Industrial Average (DOW) and the Deutsche Aktienindex (DAX). Our main findings are as follows: foreign daytime returns can significantly influence the domestic overnight returns; this holds for both the US and the German market; there is no evidence of spillovers from the previous daytime returns in the US to the DAX morning trading; short-lived mean spillovers, especially from the DAX noon-to-3:30 pm (CET) segment into the DOW, can be identified; and the uncritical use of the DAX opening quote is very likely to produce spurious results due to institutional peculiarities. To avoid this problem we propose a proxy for the DAX opening that appears satisfactory. Author Affiliation: (a) European Commission, Joint Research Center IPSC, TP 361, 21020 Ispra (VA), Italy (b) Eberhard Karls Universitat Tubingen, Wirtschaftswissenschaftliche Fakultat, Mohlstr. 36, D-72074 Tubingen, Germany

The effect of changes made to earnings requirements of the listing rules covering initial public offering performance on the Hong Kong stock market are analyzed.

This study investigates the contemporaneous correlation and the spillover effects between the US and the German stock markets around the opening of the two markets. It is based on a newly compiled sample of intra-day data for the two blue chip indices, the Dow Jones Industrial Average (DOW) and the Deutsche Aktienindex (DAX). Our main findings are as follows: foreign daytime returns can significantly influence the domestic overnight returns; this holds for both the US and the German market; there is no evidence of spillovers from the previous daytime returns in the US to the DAX morning trading; short-lived mean spillovers, especially from the DAX noon-to-3:30 pm (CET) segment into the DOW, can be identified; and the uncritical use of the DAX opening quote is very likely to produce spurious results due to institutional peculiarities. To avoid this problem we propose a proxy for the DAX opening that appears satisfactory. JEL classification: G15; C32 Keywords: Spillovers; Contemporaneous correlation; Information transmission; Intra-day data; GARCH models

This paper expands on the work of Sarno and Taylor [1999. Hot money, accounting labels and the permanence of capital flows to developing countries: an empirical investigation. Journal of Development Economics 59, 337-364; Moral hazard, asset price bubbles, capital flows, and the East Asian crisis: the first tests. Journal of International Money and Finance 18, 637-657] by developing an IMF-induced creditor moral hazard framework in stock markets under alternative assumptions of asset price bubbles and domestic implicit guarantees. To do so, it employs IMF-related news associated with program negotiations and program approval. Using daily stock returns for Indonesia and Korea, we estimate the changes in stock returns in response to IMF-related news during the Asian crisis period. Some of the results regarding Korea and, to a lesser extent, Indonesia are consistent with the creditor moral hazard interpretation that assumes implicit guarantees and asset price bubbles. JEL classification: F32; F33; F34 Keywords: Asian crisis; Creditor moral hazard; Stock market bubbles; The IMF

The impact of trading behavior of investors on stock market trends is examined.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2006.01.006 Byline: Diana Diaz Weigel (a), Gordon Gemmill (b) Abstract: This paper uses bond prices to investigate how the creditworthiness of Argentina, Brazil, Mexico and Venezuela is influenced by global, regional and country-specific factors. Each country's distance-to-default is estimated monthly for 1994-2001, by fitting the structural model of Cathcart and El-Jahel [. Semi-analytical pricing of defaultable bonds in a signalling jump-default model. The Journal of Computational Finance 6, 91-108] with a Kalman Filter to Brady bonds. A small set of variables is able to explain up to 80% of the variance of the estimated distance-to-default for each country. Surprisingly, country-specific variables account for only about 8% of the explained variance; the largest part of the variance (45%) is explained by regional factors, which relate to joint stock-market returns, volatility and market sentiment; global conditions, related mainly to US stock-market returns, explain another 25% of the variance. Of the 20% variance which remains unexplained, more than half is due to another common (but unidentified) factor. The conclusion is that the creditworthiness of these four emerging markets is driven mainly by a common set of factors, which are related closely to stock markets in the region and the United States. Author Affiliation: (a) Dresdner Bank, Theodor Heuss Allee 44-46, 60301 Frankfurt Main, Germany (b) Warwick Business School, University of Warwick, Coventry CV4 7AL, UK

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2006.01.004 Byline: Kee-Hong Bae (a), Warren Bailey (b), Connie X. Mao (c) Abstract: We document beneficial associations between the information environment in emerging stock markets and changes in openness to foreign equity investors reflected in legal, regulatory, and cross-listing events, the fraction of stock available to foreign investors, and the size of U.S. portfolio flows. Increased openness is associated with increases in firm-specific information, analyst coverage, and analyst value-added, and decreases in earnings management. In particular, foreign analysts increase their presence, activity, and contribution to the information environment after openness increases. Across a detailed sample of Korean firms, however, such effects are dampened for firms that rate poorly on governance. Author Affiliation: (a) Queen's School of Business, Queen's University, Kingston, Ontario K7L 3N6, Canada (b) Johnson Graduate School of Management, Cornell University, Sage Hall, Ithaca, NY 14853-6201, USA (c) Fox School of Business and Management, Speakman Hall, Philadelphia, PA 19122-6083, USA Article Note: (footnote) [star] We thank Vidhi Chhaochharia, Helen Choy, Jean-Claude Cosset, Vihang Errunza, Andrew Karolyi, Dong-Cheol Kim, Haitao Li, Alfredo Mendiola, Randall Morck, Dilip Patro, Kate Phylaktis (the editor), Mark Seasholes, Hyun-Han Shin, Bernard Yeung, and workshop participants at Fordham, Korea University, Korean Finance Association, McGill, Rutgers, Ohio State, University of California at Riverside, Waseda University, the 2004 Western Finance Association meetings in Vancouver, and the 2004 Northern Finance Meetings in St. John's for comments or other assistance. Special thanks to WFA discussant Campbell Harvey for many detailed and helpful comments. We are grateful to Thomson Financial for access to their Institutional Brokers Estimate System (I/B/E/S) provided as part of a broad academic program to encourage earnings expectations research. Bae acknowledges financial support from the Asian Institute of Corporate Governance at Korea University.

The methods of defining the parameters for market microstructure noise during the measurement of volatility of stock prices are described.

The impact of electronic trading on stock markets is examined.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2005.08.012 Byline: Giancarlo Corsetti (a), Marcello Pericoli (b), Massimo Sbracia (b) Abstract: This paper builds on a standard factor model of stock market returns to reconsider recent empirical literature on contagion in financial markets based on bivariate correlation analysis. According to this literature, contagion is defined as a structural break in the linear transmission mechanism of financial shocks. Using our framework, we show that the result of 'no contagion, only interdependence' stressed by recent contributions is due to arbitrary and unrealistic restrictions on the variance of country-specific shocks. We focus on the international effects of the Hong Kong stock market crisis of October 1997 as a case study. For plausible values of the variance of country-specific shocks in Hong Kong, current tests cannot reject the null of interdependence for 16 countries out of a sample of 17. Our analysis strongly questions such conclusion, finding evidence of 'contagion' for at least five countries. Author Affiliation: (a) European University Institute, Via dei Roccettini 9, 50016 San Domenico di Fiesole, Italy (b) Banca d'Italia, Research Department, Via Nazionale 91, 00184 Rome, Italy

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2005.08.016 Byline: Alessandra Bonfiglioli (a), Carlo A. Favero (b)(c) Abstract: We explain co-movements between stock markets by explicitly considering the distinction between interdependence and contagion. We propose and implement a full-information approach on data for US and Germany to provide answers to the following questions: (i) Is there long-term interdependence between US and German stock markets? (ii) Is there short-term interdependence and contagion between US and German stock markets, i.e. do short-term fluctuations of the US share prices spill over to German share prices and is such co-movement unstable over high-volatility episodes? Our answers are, respectively, no to the first question and yes to the second one. Author Affiliation: (a) CREI, Universitat Pompeu Fabra, Ramon Trias Fargas 25/27, 08005 Barcelona, Spain (b) IGIER - Bocconi University, Via Salasco 5, 20136 Milan, Italy (c) CEPR, London, UK

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2005.08.015 Byline: Ryan Chong, Robert Hudson, Kevin Keasey, Kevin Littler Abstract: The pre-holiday effect is one of the best known of the calendar effect anomalies. This paper extends prior work by examining whether the effect has declined for the U.S., U.K. and Hong Kong markets. For all three markets, the effect is shown to have declined, but only significantly in the U.S. The result is not surprising given the relative sophistication of the market. What is surprising, however, is the reversal of the pre-holiday effect during the period 1991-1997, with the mean return on pre-holiday days becoming negative, and the subsequent elimination of this effect during 1997-2003. Author Affiliation: The International Institute of Banking and Financial Services, Leeds University Business School, University of Leeds, Leeds LS2 9JT, UK

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2005.08.007 Byline: Bernd Hayo (a)(b), Ali M. Kutan (b)(c)(d) Abstract: We examine the reaction of financial market returns and volatility in a diverse group of six emerging markets to a set of IMF events during the Asian, Russian and Brazilian crises of 1997-1999. Focusing on stock markets first, we find that on average, negative (positive) IMF news reduces (increases) daily stock returns by about one percentage point. The most influential event is the delay of loans from the IMF. For foreign exchange market returns, we only observe significant effects of bad IMF news, and on bond markets neither good nor bad news seems to affect interest rate spreads. IMF news does not have a significant impact on the volatility of the financial markets. Further, both gains and losses resulting from IMF news tend to be neutralized within one day after the announcement. Finally, we find that IMF news does not cause creditor panic. Author Affiliation: (a) Faculty of Business Administration and Economics (FB 02), Philipps-University Marburg, Universitatsstr. 24, 35037 Marburg, Germany (b) ZEI, University of Bonn, Germany (c) Department of Economics and Finance, Southern Illinois University, Edwardsville, IL 62026-1102, USA (d) Emerging Markets Group, London, UK

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2005.04.007 Byline: Patricia L. Chelley-Steeley Abstract: This paper assesses the extent to which the equity markets of Hungary, Poland the Czech Republic and Russia have become less segmented. Using a variety of tests it is shown there has been a consistent increase in the co-movement of some Eastern European markets and developed markets. Using the variance decompositions from a vector autoregressive representation of returns it is shown that for Poland and Hungary global factors are having an increasing influence on equity returns, suggestive of increased equity market integration. In this paper we model a system of bivariate equity market correlations as a smooth transition logistic trend model in order to establish how rapidly the countries of Eastern Europe are moving away from market segmentation. We find that Hungary is the country which is becoming integrated the most quickly. Author Affiliation: Finance, Accounting and Law group, Aston Business School, University of Aston, Aston Triangle, Birmingham, B4 1AL, UK

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2005.04.001 Byline: Robert-Paul Berben (a), W. Jos Jansen (b) 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. Author Affiliation: (a) Economic Policy Department, De Nederlandsche Bank, P.O. Box 98, 1000 AB Amsterdam, The Netherlands (b) Economic Policy Department, Ministry of Social Affairs and Employment, P.O. Box 90801 The Hague, The Netherlands

A study is conducted using heteroscedasticity robust Box Pierce test to analyze the weak form efficiency, a degree of efficient market hypothesis, of Dhaka Stock Exchange.

An analysis of US stock markets post war shows that expected returns vary based on time and similar variation in dividend growth rate too is anticipated by the stock markets. This expected dividend growth rate may or may not be supported by dividend-price ratio. The relationship between dividend forecasts and forecasts of excess stock returns in business cycles is also examined.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2005.03.004 Byline: Michele Bagella, Leonardo Becchetti, Fabrizio Adriani Abstract: By assuming that a large share of investors (which we call fundamentalists) follows a fundamental approach to stock picking, we build a discounted cash flow (DCF) model and test on a sample of high-tech stocks whether the strong and the weak version of the model are supported by data from the US and European stock markets. Empirical results show that 'fundamental' earning price ratios explain a significant share of cross-sectional variation of the observed E/P ratios, with other additional variables being only partially and weakly relevant. Within this general framework, valid both for Europe and the US, empirical results outline significant differences between the two markets. The most relevant of them is that the relationship between observed and fundamental E/P ratios is much weaker in Europe. Author Affiliation: Universita Tor Vergata, Roma, Facolta di Economia, Dipartimento di Economia e Istituzioni, Via di Tor Vergata snc, 00133 Roma, Italy Article Note: (footnote) [star] This paper has been developed within a CNR research project on 'Mathematical methods for financial markets' and presented at the IX Tor Vergata Financial Conference, November 2000. We thank A. Beltratti, T. Berglund, J. Dwyer, I. Hasan, M. Lo Cicero, J. Lothian, G. Marini, C. Rossi, P.L. Scandizzo, and R.Waldmann for useful comments and suggestions. A special thank goes to L. Guarcello for his precious research assistance. An earlier version of the paper is CEIS Working Paper no. 138. The usual disclaimer applies.

A study examining the relationship between stock market fluctuations and macroeconomic variables is presented. The efficacy of these variables for forecasting the returns from stock market is examined vis-a-vis benchmark models, which do not use these variables.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2005.01.005 Byline: Giulio Cifarelli (a), Giovanna Paladino (b) Abstract: This paper investigates the high frequency behavior of US, British and German stock market exuberance using an index provided by standard portfolio arbitrage relationships. Symmetric and asymmetric multivariate GARCH models are implemented to quantify international volatility linkages between January 1992 and April 2000. A shift in volatility transmission is detected from May 1997 onwards. Empirical analysis suggests that equity markets volatility modeling with exuberance indexes is more accurate than modeling with stock returns. Exuberance volatility comovements across countries are compared with the corresponding return comovements. An interpretation of their discrepancy is provided in terms of bond and stock returns international covariation. Author Affiliation: (a) Economics Department, University of Florence, 50127 Florence, Italy (b) Economics Department, LUISS and Economic Research Department, SanPaolo IMI, Viale dell'Arte 25, 00144 Rome, Italy

The impact of investors' forecasting decisions on stock markets and business earnings and is examined.

The turn-of-the-year or January effect is a phenomenon that refers to the unusual large returns exhibited by small stocks in the beginning days of January. The direct relation between institutional trading behavior in the United States equity market and anomalous turn-of-the-year return patterns of small stocks is examined. The empirical results of the study on this relation utilizing data from CDA Investment Technologies, Inc. and the Center for Research in Security Prices are presented.

The pricing predictability of two types of shares ' A' which is for Chinese investors and 'B', which is available for non-Chinese investors of share market and the reason for deregulating the access to 'B' shares is analyzed. Greater predictability of 'B' share prices is revealed.

The methodology initiated by Dreze has a natural extension, which means that the firms are asked to satisfy a first-order necessary condition of profit maximization with respect to the Dreze's prices and is extended to define the behavior of the firms in a multi-period, multi-commodity economy with stock market. The first-order necessary conditions for a constrained Pareto optimal allocation are also exhibited.

We analyse the reaction of the New Zealand stock market to five economically-neutral events that psychology research indicates have varying degrees of influence on emotion and mood. Contrary to behavioural finance principles, only one of these events is associated with mean or median returns that are statistically different from those on non-event days, and even this disappears in the post-1984 period. However, several events offer returns that differ from those on non-event days in an economically significant manner. Moreover, the variance of returns for event days is typically much greater than the variance for non-event days. Contrary to what theory would suggest, the market's propensity to react to economically-neutral events is largely independent of the mid-1980's market reforms., 1. Introduction A central paradigm of financial economics is the efficient markets hypothesis. This asserts that securities prices do not systematically deviate from those that can be justified by economic [...]

The resource allocation decision of a manager inside a multidivision firm whose compensation is based on the firm's stock price is analyzed. The exhibition of a positive correlation across the firms divisions by the internal investments is observed.

Six Latin American countries are examined by estimating the country financial risk premium and its effects on the performance of the stock markets in those countries. The countries being examined are the largest Latin American markets.

The Peso problem hypothesis is advocated in the financial literature to explain the historically puzzlingly high risk premium of stock returns. Using a dynamic model of learning, the implications of the Peso problem hypothesis are shown as far more reaching than the ones commonly advocated, implying most of the stylized facts about stock returns.