Measurement of market integration and arbitrage

We develop a measurement theory of market integration, basedon two notions of 'integrated markets'. First, two markets cannotbe perfectly integrated in any sense if one can construct twoportfolios, one from each market, that have identical payoffsbut different prices. In that case, the law of one price isviolated across the markets. Second, they cannot be integratedin a stronger sense if there are cross-market arbitrage opportunities.Two measures of market integration are developed, respectivelyreflecting these notions. The smaller the measures, the moreclosely integrated (in the respective senses) the markets. Amongother things, they are interpreted as measuring pricing discrepancybetween markets.     

Stock returns and inflation with supply and demand disturbances

We account for the relation between stock returns and inflationwith two independent disturbances: supply shocks and demandshocks. Supply shocks reflect real output shocks and cause anegative relation between stock returns and inflation, whiledemand shocks are mainly due to monetary shocks and generatea positive relation between stock returns and inflation. Weshow, both theoretically and empirically, that the stock return-inflationrelation varies over time and across countries, depending onthe relative importance of the two types of shocks. Our empiricalevidence is based on pre- and postwar periods in the UnitedStates, as well as the postwar period in the United Kingdom,Japan, Germany.     

Urban Infrastructure Financing and Delivery in India and China

I. Introduction When Indian Prime Minister Dr Manmohan Singh announced in 2005 that Mumbai will be like Shanghai for India, a trigger was fired. Little did he know that his statement would be taken out of context and interpreted differently than what he had meant. Since then, the term “Shanghaing Mumbai” has caught on in the city development discussions in India.The Chief Minister of Maharashtra said that he would do his best to fulfil the dream of making Mumbai into a World Class Ci…     

Spatial economic development in South Africa: an overview and evaluation of the platinum spatial development initiative

The Platinum Spatial Development Initiative (Platinum SDI), located in the North West province of South Africa, is examined in this article. The article commences with a historical synopsis of industrial policy and regional industrial development policy in South Africa. Thereafter the trade and industrial policies of the North West Provincial Government are discussed in the contexts of its economic development strategies ‘North West 2001’ from 1997, and the ‘North West Economic Development and Industrialisation Strategy’ from 2002. Various arguments for and against the viability of the Platinum SDI are put forward.     

Portfolio performance measurement: theory and applications

Any admissible portfolio performance measure should satisfyfour minimal conditions: it assigns zero performance to eachreference portfolio and it is linear, continuous, and nontrivial.Such an admissible measure exists if and only if the securitiesmarket obeys the law of one price. A positive admissible measureexists if and only if there is no arbitrage. This article characterizesthe (infinite) set of admissible performance measures. It isshown that performance evaluation is generally quite arbitrary.A mutual fund data set is also used to demonstrate how the measurementmethod developed here can be applied.     

Litigation risk, intermediation, and the underpricing of initial public offerings

We formally examine the role of litigation risk in initial publicoffering (IPO) pricing. The underwriter's pricing decision tradesoff current revenue against expected future litigation costs,both of which are increasing in the IPO price. Given a time-consistencyconstraint and rational expectations on the part of investors,however, the 'standard' litigation risk argument does not leadto equilibrium underpricing. We develop a richer model thatprovides sufficient conditions under which there is equilibriumunderpricing. The issuer's choice of employing an underwriterversus floating the IPO on its own is examined, and varioustestable implications of the model are developed.     

Estimating the profits from trading strategies

Price improvement is the difference between the execution priceof an order and the quoted bid or ask when the order was submitted.We show that expected price improvement falls off dramaticallyas the size of the order approaches the quoted depth, and becomesnegative for larger orders. This is particularly important forsmall firms because the quoted depths are low. Using quotedspreads and depths and our estimate of expected price improvement,we show that trading strategies that attempt to exploit theweekly predictability of small-firm returns would be swampedby transaction costs.