Financial integration and the price of world covariance risk: Large- vs. small-cap stocks

We investigate whether recent country-level evidence of global pricing is particular to large-cap stocks. Specifically, we examine cross-country return correlations and conduct asset pricing tests on three size-based stock portfolios for nine developed countries over the period from 1980 to 2004. We find that large-cap stocks realize significant comovements across countries, whereas small-cap stocks realize smaller average correlations (relative to both large-cap stocks and small-cap stocks across countries). More important, asset pricing tests suggest that while large-cap stocks are priced globally, global pricing is rejected for most small-cap stocks. Finally, the evidence indicates that financial integration deepened in recent years primarily for large-cap stocks. Overall, the results suggest that the global pricing pertains chiefly to large-cap stocks.     

Competition and Information Production in Market Maker Models

Abstract:   The microstructure literature models the mechanisms through which fundamental information is incorporated into market prices. This paper extends previous models by endogenising information production and analysing incentives for costly information production. In contrast to the existing literature, increasing the number of informed traders can result in reduced price informativeness. When prices have an allocative role this has welfare consequences: the regulatory implications of a dichotomy between private and public incentives for information gathering are discussed.     

Trader Anonymity, Price Formation and Liquidity

Using data from the Frankfurt Stock Exchange we analyze priceformation and liquidity in a non-anonymous environment withsimilarities to the floor of the NYSE. Our main hypothesis isthat the non-anonymity allows the specialist to assess the probabilitythat a trader trades on the basis of private information. Heuses this knowledge to price discriminate. This can be achievedby quoting a large spread and granting price improvement totraders deemed uninformed. Consistent with our hypothesis wefind that price improvement reflects lower adverse selectioncosts but does not lead to a reduction in the specialist's profit.Further, the quote adjustment following transactions at thequoted bid or ask price is more pronounced than the quote adjustmentafter transactions at prices inside the spread. Our resultsindicate that anonymity comes at the cost of higher adverseselection risk. JEL Classification: G10.     

Trader Anonymity, Price Formation and Liquidity

Using data from the Frankfurt Stock Exchange we analyze price formationand liquidity in a non-anonymous environment with similarities to thefloor of the NYSE. Our main hypothesis is that the non-anonymity allows the specialist to assess the probability that atrader trades on the basis of private information. He uses this knowledgeto price discriminate. This can be achieved by quoting a large spread and granting price improvement to traders deemed uninformed.Consistent with our hypothesis we find that price improvement reflects loweradverse selection costs but does not lead to a reduction in the specialist's profit. Further, the quote adjustmentfollowing transactions at the quoted bid or ask price is more pronounced than the quote adjustment aftertransactions at prices inside the spread. Our results indicate that anonymity comes at the cost ofhigher adverse selection risk.     

Additive and Multiplicative Uncertainty Revisited: What Explains the Contrasting Biases?

above the certainty level while for additive uncertainty the price should be lower than the certainty level. This note gives an intuitive explanation for the result after first presenting a parsimonious review of the two models. We also discuss which, if either, of the two models is more realistic. Received December 14, 2001; revised version received July 16, 2002 Published online: April 30, 2003 We thank referees for helpful comments. Ciaran Driver would like to acknowledge the research facilities from ANU, Canberra for their help in writing this paper.     

Open economy and financial burden of corruption: theory and application to Asia

We discuss why corruption remains high and show that corruption contributes to the Banking distress and to the rapid transmission across international stock and currency markets. Undeveloped ‘derivative securities’ markets make the risk from stress-induced volatility difficult to manage. Vinod’s (1999) closed economy model is extended to indicate the asymmetry of ‘home bias’ and the effect of corruption on the value at risk (VaR). Our theory predicts that capital flight controls will be many, foreign direct investment (FDI) will be low and cost of capital will be high in corrupt developing countries, which is supported by Asian data. We include some policy recommendations regarding financial institutions and markets.     

Inflation dynamics in Kazakhstan1

In January 1992, Kazakhstan initiated a reform programme to move towards market-determined prices. The price liberalization process was characterized by large relative price shifts and an increase in the overall price level towards those observed in market economies. The paper shows how the piecemeal manner in which prices were liberalized resulted in strong relative price variability over a prolonged period of time, against a background of high inflation. Convergence towards international relative and absolute price levels has progressed but is not complete, with prices for energy and services in particular still below market economy levels.     

On the test of the correction mechanism for mis-pricing between assets using a statistical yield spread model

This paper investigates the existence of a correction mechanism for mis-pricing between Japanese stock and bond. By this correction mechanism we mean that when deviations occur from the equilibrium levels of the expected return differentials between stock and bond — the risk premium differentials, the market will tend to correct the mis-pricing and bring the expected return differentials back to the equilibrium levels. We assume that the yield spread between the predicted earnings price ratio of stock and the yield to maturity of bond reflects the risk premium between stock and bond, and estimate the equilibrium risk premium differentials and mis-prices between stock and bond by modelling their behaviors with a statistical yield spread model (SYS). Empirical results strongly indicate the existence of the mis-pricing correction mechanism, suggesting the inefficiency of securities markets.     

企业竞争策略中的成本效益分析方法

企业每一项经营决策都应该进行成本效益分析，市场竞争中可以根据本企业的成本曲线和需求曲线，预测出竞争策略实施后对内部成本和外部需求可能产生的影响，从而计算出某项决策的经济效果。