RAPID GROWTH IN CHINA AND THE ASIAN ECONOMIES: SOME STYLISED FREE‐MARKET POLICY INFERENCES

The focus of this article is on the rapid growth of the Chinese economy and its ongoing interaction with the rest of Asia. It concludes that rapid growth in both Asia and China has resulted from free‐market‐oriented neoclassical economic policies and principles. Owing to its economy's size, its openness and the briskness of its GDP growth, China has influenced economies across the globe as well as the more proximate regional economy.     

Correlation and the pricing of risks

Given a pricing kernel we investigate the class of risks that are not priced by this kernel. Risks are random payoffs written on underlying uncertainties that may themselves either be random variables, processes, events or information filtrations. A risk is said to be not priced by a kernel if all derivatives on this risk always earn a zero excess return, or equivalently the derivatives may be priced without a change of measure. We say that such risks are not kernel priced. It is shown that reliance on direct correlation between the risk and the pricing kernel as an indicator for the kernel pricing of a risk can be misleading. Examples are given of risks that are uncorrelated with the pricing kernel but are kernel priced. These examples lead to new definitions for risks that are not kernel priced in correlation terms. Additionally we show that the pricing kernel itself viewed as a random variable is strongly negatively kernel priced implying in particular that all monotone increasing functions of the kernel receive a negative risk premium. Moreover the equivalence class of the kernel under increasing monotone transformations is unique in possessing this property.      

China and India： An Era of Escalating Economic Interaction

I. Historic Cultural and Economic Relations China and India are both ancient civilizations, with histories stretching over 5000 years. Their mutual relations are also ancient. China and India have long-term intellectual and cultural ties, which historically fell in the domain of religious scholars. These strong ties date back to the first century AD when Buddhism spread from India to China. The history of Buddhism chronicles detailed accounts of religious and cultural bonds between the t…     

The Psychology of Intertemporal Discounting: Why are Distant Events Valued Differently from Proximal Ones?

Research in intertemporal choice has been done in a variety of contexts, yet there is a remarkable consensus that future outcomes are discounted (or undervalued) relative to immediate outcomes. In this paper, we (a) review some of the key findings in the literature, (b) critically examine and articulate implicit assumptions, (c) distinguish between intertemporal effects arising due to time preference versus those due to changes in utility as a function of time, and (d) identify issues and questions that we believe serve as avenues for future research.     

When is informed trading more prevalent?—An examination of options trading around Indian M&A announcements

This study examines the prevalence of informed trading around proximate-date versus far-date mergers and acquisitions (M&As). Further, different options strategies pursued by informed traders in proximate-date M&As are identified. The results highlight that proximate-date M&As are associated with a significantly higher level of informed trading vis-à-vis far-date M&As. Results on the choice of options strategies highlight that risk-averse, informed traders may pursue a straddle strategy to profit from their private information, while risk-seeking, informed traders may use a vertical call spread strategy. Informed traders desirous of hedging their existing positions may employ a protective put strategy.     

Self‐similarity in long‐horizon returns

Asset returns incorporate new information via the effects of independent and possibly identically distributed random shocks. They may also incorporate long memory effects related to the concept of self‐similarity. The two approaches are here combined. In addition, methods are proposed for estimating the contribution of each component and evidence supporting the presence of both components in both the physical and risk‐neutral distributions is presented. Furthermore, it is shown that long‐horizon returns may be nonnormal when there is a self‐similar component. The presence of a self‐similar component also questions positive equity biases over the longer term.     

The Impact of Macroeconomic and Financial Variables on Market Risk: Evidence from International Equity Returns

Using a GARCH approach, we estimate a time–varying two–factor international asset pricing model for the weekly equity index returns of 16 OECD countries. We find significant time–variation in the exposure (beta) of country equity index returns to the world market index and in the risk–adjusted excess returns (alpha). We then explain these world market betas and alphas using a number of country–specific macroeconomic and financial variables with a panel approach. We find that several variables including imports, exports, inflation, market capitalisation, dividend yields and price–to–book ratios significantly affect a country's exposure to world market risk. Similar conclusions are obtained by using lagged explanatory variables, and thus these variables may be useful as predictors of world market risks. Several variables also significantly impact the risk–adjusted excess returns over this time period. Our results are robust to a number of alternative specifications. We further discuss some economic hypotheses that may explain these relationships.