Covered Interest Parity and Speculative Efficiency: Some Empirical Evidence for Australia*

Two key relationships which feature prominently through out modern international monetary theory are: (i) covered interest parity and(ii) speculative efficiency of the foreign exchange market, i.e., the unbiasedness of the forward rate as a predictor of the spot rate. This paper presents some empirical evidence for these two hypotheses using Australian data over the period September 1974 to December 1981 during which the Australian dollar was essentially floating. Both quarterly and overlapping monthly data are used. The results obtained generally provide some support for the two hypotheses.     

INVESTING IN INSTITUTIONS

Robust institutional change is difficult to achieve. However, it is more difficult for some countries than others. We use data on 69 countries between 1870 and 2000 to show that political instability does not always affect growth outcomes. We then develop a simple model to explain this fact in which the likelihood that “good” institutions are abandoned during periods of political uncertainty depends on the opportunity cost of doing so. We operationalize our model by using contract intensive money as a proxy for this initial investment in growth‐enhancing institutions. Cross‐sectional and panel growth regressions support the model's predictions.     

Aggregate Earnings and Asset Prices

A principal-components analysis demonstrates that common earnings factors explain a substantial portion of firm-level earnings variation, implying earnings shocks have substantial systematic components and are not almost fully diversifiable as prior literature has concluded. Furthermore, the principal components of earnings and returns are highly correlated, implying aggregate earnings risks and return risks are related. In contrast to previous studies, the correlation we report between the systematic components of earnings and returns is stable over time. We also show that the earnings factors are priced, in the sense that the sensitivities of securities' returns to the earnings factors explain a significant portion of the cross-sectional variation in returns, even controlling for return risk. This suggests earnings performance is an underlying source of priced risk. Our evidence that the information sets of returns and earnings are jointly determined implies cash flow risk and return risk are not fully separable, and raises the possibility that it is the common variation of earnings and returns that is priced.     

The Impact of Non-Serial Publications on Research in Accounting and Finance

This study examines the role of books and official Publications in accounting and finance research. From an analysis of thirteen leading journals for the year 1987–8 we report on the characteristics of such non-serial materials used by authors to support their research. We find that the accounting discipline in particular has become more open to influence from other disciplines. The individual perspectives of these thirteen journals can be partially revealed by their use of non-serial materials. Using cluster analysis we examine inter-journal variations in the disciplinary pattern of book citations and the distribution of citations to official bodies. Several relatively homogeneous groupings are identified.     

Manufacturing Industry and the Balance of Payments Adjustment: The United Kingdom Case

The thesis of this essay is that it is unlikely that economic growth in the UK during the rest of the 1990s will be balance-of-payments constrained in any significant sense. Our conclusion is that manufacturing industry does not and will not play a unique role in Britain's economic future. These propositions are not to be confused with two distinct and related ones. The first is that the fact that the balance of payments need not be seen as a constraint does not rule out the possibility of other problems associated with the balance of payments such as we have seen in the recent past. Secondly, the fact that manufacturing industry is not in any sense a unique part of economic activity in no way lessens its importance as a major and significant sector. This paper is in no sense a critique of manufacturing industry.     

Book Reviews

Technological Collaboration in Industry; strutegy, policy and internationalization in innovation
Corporate Venturing: Creating New Businesses within the Firm
Handbook of Innovation Management
Technology and enterprise in a historical perspective
Intellectual Property for Engineers
The Ernst & Young Business Plan Guide
crnagement as a New Technology
Mass Customization: The New Frontier in Business Competition