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The optimal mean-reverting portfolio (MRP) design problem is an important task for statistical arbitrage, also known as pairs trading, in the financial markets. The target of the problem is to construct a portfolio of the underlying assets (possibly with an asset selection target) that can exhibit a satisfactory mean reversion property and a desirable variance property. In this paper, the optimal MRP design problem is studied under an investment leverage constraint representing the total investment positions on the underlying assets. A general problem formulation is proposed by considering the design targets subject to a leverage constraint. To solve the problem, a unified optimization framework based on the successive convex approximation method is developed. The superior performance of the proposed formulation and the algorithms are verified through numerical simulations on both synthetic data and real market data. [ABSTRACT FROM AUTHOR]

This paper examines causalities among foreign direct investment (FDI), economic growth (GTH), and financial development proxied by both equity market size (EQM) and bank credit to private sectors (BANK). We use a structural cointegration model with a vector error correction (VEC) mechanism to test for the short-term dynamics of the model. The results show that there is a reinforcing causal relationship between FDI and EQM, and between EQM and GTH in the short term, and that these variables cointegrate in the long term. As far as practical implications are concerned, the results reinforce that developed financial markets are an essential precondition for the positive impact of FDI on economic growth, reflecting host countries' ability to exploit FDI more efficiently. Moreover, the paper provides further substance for the notion that a country with a well-developed financial market gains significantly from FDI inflow. [ABSTRACT FROM AUTHOR]

This paper examines the determinants of interest rates in India in the post-reform period in the context of a model that takes into account both domestic and external factors. The short- and long-run behavior of interest rates (commercial paper rate, 3-month Treasury bill rate, 12-month Treasury bill rate) is studied. The empirical results are robust across interest rates and indicate the existence of a cointegrating relationship between real interest rates, real government expenditure, real money supply, foreign interest rates and the forward premium. The estimations also show that movements in interest rates are Granger caused by both domestic and external factors. [Copyright &y& Elsevier]

Previous studies that analyzed income inequality mostly concentrated on identifying microeconomic determinants such as income, social factors (family structure, employment, or age distribution), or factor endowments; or such macroeconomic determinants as the exchange rate, economic openness or the black market premium. These studies also relied upon cross-section estimates in their assessments. In this paper, we introduce the "saving-investment" gap, which measures whether the need for financing is unmet, as another determinant of income inequality. We then apply time-series techniques in a study of 16 countries. Using the "bounds testing" cointegration method, in which variables in a given model can be stationary, non-stationary, or a combination of the two, we find varying results across countries. While these results highlight the need for further country-specific research, they indicate the benefits that external financing can provide. [ABSTRACT FROM AUTHOR]

This paper presents an econometric analysis of the demand for the monetary aggregate M1 for Mexico. Using cointegration techniques, we identify both a stable long-run relationship between M1 and its determinants, and a statistically sound single-equation error-correction model. Results are used to carry out the following simple applications: i) empirical determination of the value and stability of dual inflationary equilibria, given the observed seigniorage levels; ii) calculation of the seigniorage maximizing inflation rate, and iii) analysis of the potential relationship between a measure of excess money and inflation. Results indicate that the low inflation equilibrium is stable, and that the excess money indicator shows, in retrospective, some capacity in predicting inflationary pressures. [ABSTRACT FROM AUTHOR]

This paper explores the international capital mobility in North Asia (South Korea and Taiwan), South Asia (Indonesia, Malaysia, the Philippines, Singapore and Thailand) and India. In particular, the Feldstein-Horioka puzzle, which states domestic investment and savings are highly and positively correlated, was examined for cointegration using an autoregressive distributed lag bounds testing procedure. The results did not show a positive correlation between savings and investment. There was essentially no relationship at level between savings and investment in all eight cases. Thirteen out of 16 structural break tests or 81.25% indicate no structural breaks. The analysis concluded with certain limitations that there is high capital mobility in the economies under study. [ABSTRACT FROM AUTHOR]

Abstract: This paper analyses the behaviour of volatility for several international stock market indexes, namely the SP 500 (USA), the Nikkei (Japan), the PSI 20 (Portugal), the CAC 40 (France), the DAX 30 (Germany), the FTSE 100 (UK), the IBEX 35 (Spain) and the MIB 30 (Italy), in the context of non-stationarity. Our empirical results point to the evidence of the existence of integrated behaviour among several of those stock market indexes of different dimensions. It seems, therefore, that the behaviour of these markets tends to some uniformity, which can be interpreted as the existence of a similar behaviour facing to shocks that may affect the worldwide economy. Whether this is a cause or a consequence of market globalization is an issue that may be stressed in future work. [Copyright &y& Elsevier]

This paper focuses on the distinguishing features and issues of European secondary stock markets (or parallel stock markets), trying to signify theft role as alternative sources of financing entrepreneurship, given the importance of small-medium enterprises (SMEs) to the integrated European economy and the existed financing gap. Access to finance is indispensable for growth but many SMEs have difficulties, as the risk capital market is underdeveloped and banks increasingly avoid risky lending. Cointegration tests are applied to investigate the relationship between the small-medium business (SMBs) markets (United Kingdom, France, Germany, Italy and Greece) into a European integrated economic and financial environment. The findings of the research show absence of integration among the SMBs markets, signaling theft diversified role in financing SMEs. This enhances us to propose some interesting policy actions into the adoption of a common legal and trading framework in order to upgrade their common role as alternative sources of financing European entrepreneurship. [ABSTRACT FROM AUTHOR]