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"The second essay uses our theoretical model to address the question of whether the IFC investable indices are priced globally or locally. Indeed S&P/IFC provides two emerging market indices: the IFC global index (IFCG) and its subset the IFC investable index (IFCI). Since the IFCI is fully investable, both the academic and practitioners implicitly assume that this subset of emerging markets is priced in the global context. This is a critical assumption for corporate finance decisions and portfolio management. Hence, this essay investigates the pricing behavior of the IFCI index returns using a conditional version of our model that allows for segmentation and PPP deviations. The results suggest that local factors are important in explaining returns of the IFC investable indices and that the return behavior of IFCI indices is similar to that of the IFCG." --
We analyze the impact of both Purchasing Power Parity (PPP) deviations and market segmentation on asset pricing and investor's portfolio holdings. The freely traded securities command a world market risk premium and an inflation risk premium. The securities that can be held by only a subset of investors command two additional premiums: a conditional market risk premium and a segflation risk premium. Our model is empirically supported with important implications for tests of international asset pricing.
Abstract: Two dimensions that complicate finance in an international setting are market segmentation and foreign exchange risk. With the increasing globalization of financial markets, these two effects require that many issues such as investment analysis, risk management, asset pricing and capital budgeting confronting financial professionals have to rethink in an international context. My dissertation consists of three essays that intend to address the following questions: "Can time-varying risk premia explain the deviations from Uncovered Interest Parity (UIP)?", "Is foreign exchange risk priced in international financial markets?", and "Are emerging financial markets integrated with world markets?"
Textbook, research papers on international economic theory, economic policy and practice - includes a literature survey of theoretical studies in trade relations; covers evolution of economic models explaining the determinants of trade structure, capital flow, labour mobility, trade in natural resources, etc.; examines macroeconomics aspects of balance of payments, exchange rate, international monetary system, economic relations and dependence, etc. Bibliography, graphs, statistical tables.
''In summary, the book is valuable as a textbook both at the advanced undergraduate level and at the graduate level. It is also very useful for the economist who wants to be brought up-to-date on theoretical and empirical research on exchange rate behaviour.'' ""Journal of International Economics""
This paper discusses the extent to which national capital markets have become linked, and identifies several of the more important consequences of that increased degree of integration. Alternative approaches to the measurement of capital market integration are reviewed, including deviations from the law of one price, differences between actual and optimally diversified portfolios, correlations between domestic investment and domestic saving, and cross-country links in consumption behavior. Two recent episodes of large-scale international capital flows—namely, the turmoil in the European Monetary System in the fall of 1992, and the surge of capital inflows into Latin America during the last three years—are examined for insights into the workings of today’s global capital market. Finally, the paper offers some concluding remarks on the future development of international capital markets, on exchange rate management, on alternative approaches to living with larger and more influential financial markets, and on the financing of investment in the formerly centrally planned economies.