The Intertemporal Relation Between the U.S. and Japanese Stock Markets

This paper finds a high correlation between the open to close returns for U.S. stocks in the previous trading day and the Japanese equity market performance in the current period. In contrast, the Japanese market has only a small impact on the U.S. return in the current period. High correlations among open to close returns are a violation of the efficient market hypothesis; however, in trading simulations, the excess profits in Japan vanish when transactions costs and transfer taxes are included.     

REAL AND DISTRIBUTIVE EFFECTS OF PETROLEUM PRICE LIBERALIZATION: THE CASE OF INDONESIA

The effect of higher petroleum prices on the aggregate price level, real growth, and income distribution is appraised within a multisector computable general equilibrium (CGE) model. A reduction in the government subsidy raises petroleum prices and production costs throughout the economy. Consumer demand, production, and income decline as output prices increase and consumer purchasing power decreases. The model is applied to and calibrated for Indonesia. The simulated results predict a slight increase in the price level and a slight decrease in output. An important result is that urban household groups will be the most significantly affected by the subsidy reduction.     

Foreclosure Contagion and the Neighborhood Spillover Effects of Mortgage Defaults

In this paper, I identify shocks to interest rates resulting from two administrative details in adjustable‐rate mortgage contract terms: the choice of financial index and the choice of lookback period. I find that a 1 percentage point increase in interest rate at the time of adjustable‐rate mortgage (ARM) reset results in a 2.5 percentage increase in the probability of foreclosure in the following year, and that each foreclosure filing leads to an additional 0.3 to 0.6 completed foreclosures within a 0.10‐mile radius. In explaining this result, I emphasize price effects, bank‐supply responses, and borrower responses arising from peer effects.     

Partial Privatization and Firm Performance

Most privatization programs begin with a period of partial privatization in which only non‐controlling shares of firms are sold on the stock market. Since management control is not transferred to private owners it is widely contended that partial privatization has little impact. This perspective ignores the role that the stock market can play in monitoring and rewarding managerial performance even when the government remains the controlling owner. Using data on Indian state‐owned enterprises we find that partial privatization has a positive impact on profitability, productivity, and investment.     

Foreign Banks in Poor Countries: Theory and Evidence

We study how foreign bank penetration affects financial sector development in poor countries. A theoretical model shows that when domestic banks are better than foreign banks at monitoring soft information customers, foreign bank entry may hurt these customers and worsen welfare. The model also predicts that credit to the private sector should be lower in countries with more foreign bank penetration, and that foreign banks should have a less risky loan portfolio. In the empirical section, we test these predictions for a sample of lower income countries and find support for the theoretical model.