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Abstract Purpose--The main purpose of this paper is to examine the impact of globalization on the synchronization of international financial markets. Monthly data from January 1990 to July 2005 for [...]

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 [...]

A study was conducted to analyze the factors that influence changes in the inverse of the P/E ratio (EP/) over time in broad market. Results indicate a large portion of the variation in E/P and accurately predict the future direction of E/P.

Several countries have adopted legally separated share markets (LSSM), where local firms market separate claims to the same dividend flow to domestic and foreign investors who cannot arbitrage across LSSM. We designed a laboratory experiment to test whether the inside information in one LSSM is reflected in the prices of both markets. We find that insider information does transfer across markets. The extent of this transfer depends upon whether the location of insiders is publicly known, how close prices in the informed market get to the full information equilibrium, and how much the price variance is in this market. We also observe insiders' behavior and performance under different market conditions. Efforts by insiders to manipulate the market increase when their location is unknown to the public. On average such efforts pay off to the whole group of insiders but not to the initiator of these manipulative transactions. JEL Classification: C92, G12, G14, 1. Introduction Foreign share ownership restrictions have been a common practice at different times in almost all emerging capital markets. (1) They come in various forms to protect domestic industries [...]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jimonfin.2009.01.007 Byline: Chan Shik Jung, Dong Wook Lee, Kyung Suh Park Abstract: This paper examines whether investor heterogeneity can be used for asset-pricing purposes in emerging markets. We pose this question, since the lack of transparency and greater uncertainty, which are typical of those markets, render it more likely that investors will disagree with each other and hold different portfolios, resulting in a mean-variance inefficient market portfolio. Consequently, we examine whether a heterogeneity-based factor can sufficiently augment the market portfolio, so that the two can function as multivariate proxies for the tangency portfolio. We test this hypothesis in the Korean stock market in which the measures of heterogeneity such as foreign ownership and institutional holdings are available for a large number of stocks over an extended period of time. We find that the heterogeneity-augmented two-factor model outperforms the CAPM one-factor and the Fama-French three-factor models. Consistent with the greater severity of investor heterogeneity in emerging markets, a developed market with comparable data availability, namely, Japan, shows similar but weaker test results. Author Affiliation: Korea University Business School, Seoul, 136-701, Republic of Korea

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmacro.2008.09.001 Byline: Martin Mandler Keywords: Optimal monetary policy; Monetary policy reaction function; Robust monetary policy Abstract: This paper studies whether monetary policy should respond to changes in monetary aggregates or stock market indices. Based on an empirical model of the US it presents estimates of how the inclusion of monetary aggregates or stock market indices in the central bank's information set affects the stabilization performance of an optimal monetary policy rule. It is shown that accounting for uncertainty about the structural relationships within the economy leads to a strong deterioration in the stabilization success of monetary policy reaction functions that respond to the growth rates of monetary aggregates or stock market indices. In addition it is analyzed whether money growth or changes in stock market indices help to explain US monetary policy in the recent years. Author Affiliation: University of Giessen, Department of Economics and Business, Licher Strasse 62, 35394 Giessen, Germany Article History: Received 17 July 2007; Accepted 9 September 2008 Article Note: (footnote) [star] I am indebted to an anonymous referee for helpful comments.

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 research examines whether market participants are able to identify post-acquisition operating synergies at the time of the acquisition announcement. We examine the abnormal returns of the bidding firm and its major rival and relate equity gains or losses during acquisition announcements to subsequent post-acquisition operating performance. Empirical results suggest that the abnormal stock returns of the acquiring firm surrounding the announcement is positively associated with post-acquisition operating performance, and the abnormal stock returns of the major rival firm is negatively associated with post-acquisition operating performance of the combined firm. These results indicate that abnormal stock returns, that is, the variations in the stock price movements of the acquiring and rival firms in a given window following an acquisition announcement, reflect the potential synergies at the time of acquisition announcements., INTRODUCTION Unlike the mergers and acquisitions (M&A) era of the 1970s and 1980s where the predominant motives for acquisitions were hubris, empire building, market power, and agency (Jensen, 1991; Roll, [...]

The harmonization of fiscal and economic policy within the European Monetary Union (EMU) has had a considerable impact on the economies of member countries. In particular, several studies indicate that the proceeding economic integration among euro area countries has important consequences for the factors driving asset returns in financial markets. However, these studies rely on one specific methodology [Heston, S.L., Rouwenhorst, K.G., 1994. Does industrial structure explain the benefits of international diversification? Journal of Financial Economics 36, 3-27; Heston, S.L., Rouwenhorst, K.G., 1995. Industry and country effects in international stock returns. Journal of Portfolio Management Spring, 53-58], that has recently been criticized as too restrictive. This study adopts a mean-variance approach instead. Using recent euro area stock markets data, we find strong evidence that diversification over industries yields more efficient portfolios than diversification over countries. JEL classification: G11 G15 Keywords: EMU Euro area stock markets Portfolio diversification Industry factors Country factors European integration process

The relationship of stock market returns in 13 countries is studies using data from December 1987 to April 2007. Results show that stock returns in some Asian countries are highly correlated, as well as the stock market returns of developed countries. The benefits of using portfolio diversification are discussed.

A study was conducted to investigate the stock market's changing valuation of corporate patentable assets between 1910 and 1939. Findings indicate that the value of knowledge capital increased significantly during the 1920s compared to the 1910s as investors responded to technological inventions.

ABSTRACT It is commonly believed that short sellers must possess better information than the average trader in order to overcome the costs associated with short sale restrictions. Previous studies provide [...]

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 study explores the fractionally integrated (FI) time series analysis in Malaysian stock market. Four proxies of latent volatility`, namely the absolute return, squared return and range-based (Parkinson and Garman and Klass) volatilities are selected for the empirical studies. In addition, the well-known FI autoregressive conditional variance (ARCH) type model is also taken into account for comparison purposes. Our empirical results evidence the proxy of absolute return and ARCH-type volatility model provides better performances in both the estimation and forecasting evaluations. Key words: Range-based volatility, long-range dependence, econometrics, financial time series, INTRODUCTION Recent literatures of long-range dependence (1), (5) indicate that the fractionally integrated models are widely used in financial time series analysis such as risk management, portfolio analysis and derivative [...]

A unique long-run dataset of regulatory constraints on capital account openness is used to explain global stock market correlations. It is argued that changes in the co-movement of stock indices are not random and are driven by greater freedom to move funds internationally.

With European Monetary Union (EMU), there was an increase in the adjusted spreads of euro-area sovereign securities over Germany (corrected from the foreign exchange risk), causing a lower than expected fall in borrowing costs. The objective of this paper is to study the reasons for this increase, and in particular, whether the change in the price assigned by markets was due to domestic factors (credit risk and/or market liquidity) or to international risk factors. The empirical evidence suggests that it may have been a change in the market assessment of domestic (both liquidity and default risk) rather than international factors that caused the observed increase in adjusted spreads with Monetary Integration, even though, since market size scale economies have increased since EMU, their effect differs according to the size of the market. Keywords: Monetary integration; Sovereign securities markets; International and domestic credit risk; Market liquidity

A study was conducted to present long-term memory effect in stock prices using Turkish stock index data. It also examines whether chaotic technique as wavelets captures long-term memory better than conventional techniques. Findings indicate that Daubechies wavelet analysis can provide the accurate determination for long term memory, and conventional techniques do not.

A study was conducted to examine the tail behavior of daily stock returns for emerging stock in Bahrain, Oman, and Saudi Arabia over the period 1998 to 2005. Findings indicate that the 'Peaks-Over-Threshold' (POT) method of modeling extreme tail quantiles is more accurate compared to conventional methodologies in estimating the tail behavior of market returns.

This paper studies the effects of stock market valuation on research investment, the rate of innovation, and welfare. In the presence of financing constraints for R&D investment, episodes of high market valuation can ease these constraints and raise the economy-wide investment in R&D and the rate of innovation. If the decentralized equilibrium rate of innovation is inefficiently low, then such episodes may lead to an increase in aggregate welfare even if the higher valuation is not entirely justified by fundamentals. We present a Schumpeterian-style growth model with a costly financial intermediation process to characterize the relationship between market value, entry of new firms, and the aggregate rate of innovation. We use the model to measure the welfare consequences of a stock market run-up that may only partly be justified by fundamentals. In particular, we apply the model to the US economy in the 1990s and calibrate the impact of the NASDAQ boom on the rate of innovation, growth and welfare. The welfare effect depends on the underlying change in fundamentals. We find that with an acceleration in US trend productivity growth from a pre-1995 rate of 1.4% to a rate of 2.0% per annum, the NASDAQ boom will have resulted in a net welfare gain of 0.55%. If the new growth rate is as high as 3%, the net gain was 1.35% of the present discounted value of consumption. JEL classification: O31; O16; 04 Keywords: Stock market bubbles; Financing constraints; Innovation; Welfare

ABSTRACT Throughout the history of stock markets, investors, both corporate and individual, have sought to identify an explanation for movements. Many research studies have identified the relationship between the movement [...]

Mean reversion in stock prices is examined using five different panel unit root tests. The finding showed that there is no mean reversion of stock prices, which is consistent with the efficient stock market hypothesis stating that prices respond quickly and accurately to relevant information.

The presence of long memory, or fractional dynamics, in the daily returns of the Portuguese stock market is examined covering the periods before and after the Portuguese Stock Market merged with Euronext. Findings showed that there is evidence of long memory in stock returns and that the country's stock market is more efficient after merging with Euronext.

In light of the changing economic environment in most Middle East and North African (MENA) countries, the objective of this study is to determine the contemporaneous interactions of the stock markets of Bahrain, Egypt, Israel, Jordan, Kuwait, Lebanon, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Tunisia, Turkey, and the United Arab Emirates by (1) determining the degree of market integration, (2) qualifying the return sensitivity among the markets, (3) revealing any lead-lag relationships, (4) analyzing degree and stationarity of relative market co-movements, and (5) investigating the impact of US, UK, and Indian stock market movements on the MENA counterparts. The results indicate that the changing stock market dynamics within the MENA region still yield substantial intraregional diversification benefits and suggest the inclusion of regional equity in a global portfolio., Introduction Stock markets in the Middle East widely have been ignored by international investors due to imposed restrictions on foreign stock ownership, the lack of common accounting standards and corporate [...]

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

Studying the relation between equity market liberalization and imports of capital goods, we examine one channel through which international financial integration can promote growth. For the period 1980-1997, we find that after controlling for other policies and fundamentals, stock market liberalizations are associated with a significant increase in the share of imports of machinery and equipment. We hypothesize this can be attributed to the consequences of financial integration, which allows access to foreign capital, and provide evidence consistent with this channel. Our results suggest that increased access to international capital allows countries to enjoy the benefits embodied in capital goods. Keywords: Capital account liberalization; Stock market liberalization; International capital flows; Capital goods; Machinery and equipment JEL classification: E22; F15; F21; F40; G15

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