International Transmission Effect of Volatility between the Financial Markets during the Asian Financial Crisis

In this paper I propose an analysis of interaction among global economies by focusing on the regional financial markets of Asian countries during and after the Asian financial crisis in 1997, in order to study the dynamic relationship between stock returns and exchange rate changes. In addition, the impact of the Asian financial crisis is also examined. For the methodology, the bivariate EGARCH (exponential generalized autoregressive conditional heteroskedasticity) and EGARCH-X models are used to examine the interrelationship of stock markets and foreign exchange markets. The empirical results show that a two-way feedback relationship exists between the volatility of stock returns and exchange rate changes during the recovery period of the Asian countries. This result is important because the effect of volatility transmission between global financial markets can still be observed today. Furthermore, when comparing the volatility transmission during the crisis period with that during the recovery period, it shows that the spillover effect has increased during the recovery period, indicating that the strength of the transmission mechanism has increased after the Asian financial crisis. This result also suggests that the interactions of the stock and foreign exchange markets of Asian countries were affected by the Asian financial crisis, and the impact is greater for Indonesia, Japan, the Philippines, and especially Thailand, which were more vulnerable during the financial crisis.     

RATIONAL BUBBLES IN THE STOCK MARKET: ACCOUNTING FOR THE U.S. STOCK-PRICE VOLATILITY

Can rational stochastic asset bubbles help explain the excess volatility of stock prices? The bubble considered here is treated as an unobserved state vector in the state-space model and is easily estimated using the Kalman filter. I find that the bubble components estimated account for a substantial portion of US. stock prices, and the model does a credible job in fitting the data, especially during several bull and bear markets in this century. Much of the deviation of stock prices from the present-value model are captured by the bubble.     

The Progress of Financial Market Integration in East Asia

The study investigates the progress of financial market integration in selected East Asian countries after the 1997 financial crisis. Adopting Johansen (Econometrica 59:1551–1580, 1991) multivariate cointegration on the region’s credit and stock markets, the study finds only partial cointegration in both markets which imply a low level of integration. However, for regional stock markets, the result suggests that the level of integration has been improving after the crisis.     

Legitimacy and status groups in financial markets

Economic sociologists have argued that financial markets should be analysed as uncertainty-processing social networks and intermediary groups. Networks and intermediaries alone cannot confer legitimacy upon financial actors and transactions. Status groups are a solution to this problem. They emphasize reputation, honour and good social behaviour as stabilizers of collective action, as means of social control and as indicators of legitimacy. I examine here the emergence and evolution of status groups of brokers in London, New York and Paris, and show how emphasis on honour was used to legitimize financial transactions. I argue that financial markets should be conceived as networks, intermediary and status groups. In global, automated financial markets status groups like securities analysts are gaining in prominence.     

Review of CIS Stock Markets: Future Perspectives

This paper critically reviews the market structure of major stock exchanges in eight members of Countries of Independent States (CIS)—Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Uzbekistan and Ukraine. Because these markets are somewhat similar in terms of their size, trading volume and market design, their comparative analysis will enhance our knowledge on the development of the financial sector in CIS countries. By examining the data provided by the Federation of Euro-Asian Stock Exchanges, we observe the similarities and differences among these markets that may be improved through structural changes. Later we discuss what CIS equity markets can learn from the successful examples of small and emerging company marketplaces. We also study the advantages and disadvantages of potential regional consolidation among these eight stock exchanges. We propose that while current fragmented structure may be beneficial in the short or medium term, the stock exchanges of CIS countries will benefit from consolidation in the long term. Later we focus on the Baku Stock Exchange (BSE) and propose specific suggestions to develop the market mechanism and facilitate a better environment of financial markets in Azerbaijan. We find that the BSE currently lacks several fundamental factors required to establish well-functioning financial markets. Our suggestions aim to contribute to the improvement process started by BSE management.     

Are Autocratic Rulers Also Inside Traders? Cross‐Country Evidence

Autocratic rulers can use economic regulation under their control to affect individual stock prices and then profit through insider trading. They are therefore less likely to have or enforce insider trading regulation. A cross-sectional analysis of 101 countries with stock markets supports the hypothesis. The probability of observing an enforced insider trading law is much lower in autocracies than in other countries.     

Symbolic meanings of prices: Constructing the value of contemporary art in Amsterdam and New York galleries

This article develops a sociological analysis of the price mechanism on the market for contemporary art. On the basis of in-depth interviews with art dealers in New York and Amsterdam, I address two pricing norms: one norm inhibits art dealers from decreasing prices; the other induces them to set prices according to size. To account for these pricing norms, I argue that price setting is not just an economic but also a signifying act: despite their impersonal, businesslike connotations, actors on markets manage to express a range of cognitive and cultural meanings through prices. Previously, meanings of prices have been recognized in signaling theories within economics. However, these meanings are restricted to profit opportunities. Within the humanities, by contrast, meanings of prices are restricted to contaminating or corrosive meanings. The sociological perspective I develop claims that prices, price differences, and price changes convey multiple meanings related to the reputation of artists, the social status of dealers, and the quality of the artworks that are traded.     

Stock Market and Aggregate Investment Behavior in Malaysia: An Empirical Analysis

The present paper analyzes the role of stock market, more specifically real stock prices and stock market uncertainty/volatility, on aggregate investment behavior for an emerging market, Malaysia. Employing the autoregressive distributed lags approach to cointegration test, the paper establishes a long run equilibrium that ties the aggregate investment to its determinants—real income, real stock prices, real lending rate and stock market volatility. In the long run, we document a positive relation between aggregate investment and real stock prices and a negative relation between aggregate investment and stock market volatility. These results are further supported by our analyses of their dynamic interactions based on Granger causality and impulse-response functions. Based on the results, the real stock market prices, which has yet reached the level recorded prior to the crisis, may have explained the low investment in Malaysia after the Asian crisis. Moreover, the stock market volatility can also post a threat to the investment performance.     

Financial Literacy,Human Capital and Stock Market Participation in Europe

Households’ stock market participation has significant effects on savings and on an economy’s financial development and performance. Yet participation into capital markets is limited and quite heterogonous both among and within several countries. This phenomenon represents an empirical puzzle whose understanding is rather incomplete. In this work, we exploited a combination of datasets for nine European countries and used different econometric specifications that allow to control for endogeneity of financial literacy and human capital, to assess the role of several variables in affecting the probability to participate in the stock market in year 2010. Besides socio-demographic variables, we found that financial literacy has a positive and significant effect on stock market participation, together with the level of human capital and social interaction. Country level differences are explained by such institutional factors as the effectiveness of the education system and by the attractiveness of the stock markets.     

What Happens to Defined Contribution Accounts When Labor Markets and Financial Markets Move Together?

The relationship among earnings, savings, and retirement is well known; however, the linkage between labor market outcomes and financial market performance is generally unacknowledged. We examine the implications of the link between labor markets and financial markets for workers who save money in individual retirement accounts. Specifically, differences in labor market outcomes across groups may imply differences in the timing of investments, which may reduce savings over time for these groups compared to their counterparts. Using monthly data from the Current Population Survey (1979–2002), we generate hypothetical investment portfolios using stock and bond indices. We exploit differences across demographic groups in unemployment and wage growth and use these differences to examine each group's investment outcomes. We then disaggregate the total effects into short-term and long-term components. We find some evidence of short-term market timing effects on investment, but we find much larger long-term effects for some groups. Our findings suggest that, for many people, the retirement savings losses associated with the timing of markets are similar to the costs of annuitizing savings upon retirement. The differences are especially pronounced by education and gender.     

TESTING A PRODUCTION-BASED ASSET-PRICING MODEL

We develop a dynamic production-based asset-pricing model from the solution cf a representative firm's investment and financing problem. Nonnegative correlation between capital stocks and asset returns is accommodated, as well as equity premia arisingfrom dtfferential costs of stock versus bondfinance. Under our adjustment-costs specfication, the returns on the firm's financial instruments become linear functions of the firm's average capital productivity, its investment-capital ratio, and financial instrument-specific costs. Empirical tests using U.S. T-bill rates and common stock returns yield plausible parameter estima tes and coofrm the significance qfthesefictors.     

THE LONDON BOMBINGS AND RACIAL PREJUDICE: EVIDENCE FROM THE HOUSING AND LABOR MARKET

This paper investigates the impact of the London bombings on attitudes toward ethnic minorities, examining outcomes in housing and labor markets across London boroughs. We use a difference‐in‐differences approach, specifying “treated” boroughs as those with the highest concentration of Asian residents. Our results indicate that house prices in treated boroughs fell by approximately 2% in the 2 years after the bombings relative to other boroughs, with sales declining by almost 6%. Furthermore, we present evidence of a rise in the unemployment rate in treated compared to control boroughs, as well as a rise in racial segregation. (JEL J15, J71, R21)     

Do Market Returns Influence Risk Tolerance? Evidence from Panel Data

This study used the 1992?C2006 waves of the Health and Retirement Study (HRS) to investigate changes in risk tolerance levels over time in response to stock market returns. Findings indicate that risk tolerance tends to increase when market returns increase and decrease when market returns decrease. Individuals who change their risk tolerance in this manner are likely to invest in stocks when prices are high and sell when prices are low. Researchers, employers, financial educators and practitioners should help investors overcome the bias of overweighting recent news of market performance.     

In the Enchanted Grove: Financial Conversations and the Marketplace in England and France in the 18th Century

The paper examines conversations in the 18th-century London and Paris financial marketplaces. The aim is to highlight the place of conversations as the key form of interaction in the marketplace, and to evaluate financial conversations against the broader cultural background of literary and scientific dialogues of the time. The relevance of this enterprise is that it leads to a better understanding of how the verbal interactions of the marketplace shape transaction outcomes and contribute to forms of rationality specific for financial markets. Grounded in the analysis of empirical material, the paper distinguishes between conversations-qua-transactions and conversations-about-the-world. It shows how they produce and require specific forms of knowledge from the participants; at the same time, they shape the transactions' outcomes. On this basis, the paper argues that the phenomenon of sudden mood swings in the marketplace cannot be entirely explained in irrational, psychological terms, but must be seen as the outcome of a particular conversational system.     

THE U.S. EMBARGO ACT OF 1807: ITS IMPACT ON NEW ENGLAND MONEY, BANKING, AND ECONOMIC ACTIVITY

For half a century economists have debuted the impact of the Embargo Act of 1807 on the U.S. economy. Using New England bank statistics and the weekly prices of financial assets traded in the Boston market, hypotheses generated by a real business cycle model are tested. The study concludes that the embargo significantly fnfected the levels of real and nominal bunk loans, the real and nominal money stock, and current financial asset yields. Also, increased monetary und banking activity in Maine during the period supports the long-standing hypothesis that the embargo caused an increase in smuggling activity.     

THE IMPACT OF FINANCIAL RESTRUCTURING AND CHANGES IN CORPORATE CONTROL ON INVESTMENT AND EMPLOYMENT IN THE U.S. PETROLEUM INDUSTRY

This article investigates the effects of changes in market conditions and the financial structure of domestic petroleum firms on employment and investment in offshore oil leases. Important theoretical issues include the extent to which managerial power in firms has been challenged by intervention from financial markets and institutional investors and the effects of changes in financial control on employment and inventory investment. A pooled cross-section time series data set was assembled for forty large oil companies for 1978–1989. A dynamic analysis of company employment levels and investment in offshore oil leases in the Central Gulf of Mexico reveals that falling oil prices and lower domestic oil consumption reduced spending on offshore leases. Some support was found for the agency theory's claim that lower free cash flow reduced spending on offshore leases in the late eighties. Support was also found for an executive defense strategy (Useem 1993), where petroleum company managers reduced lease spending and employment as an adaptation to changes in market fundamentals and external threats from capital markets and institutional investors.     

What the 2008 stock market crash means for retirement security

The 2008 stock market crash raises concerns about retirement security, especially since the increased prevalence of 401(k) and similar retirement saving plans means that more Americans are now stakeholders in the equity market than in the past. Using a dynamic microsimulation model, this paper explores the ability of alternate future stock market scenarios to restore retirement assets. The authors find that those near retirement could fare the worst because they have no time to recoup their losses. Mid-career workers could fare better because they have more time to rebuild their wealth. They may even gain income if they buy stocks at low prices and get above-average rates of return. High-income groups will be the most affected because they are most likely to have financial assets and to be invested in the stock market.     

What the 2008 Stock Market Crash Means for Retirement Security

The 2008 stock market crash raises concerns about retirement security, especially since the increased prevalence of 401(k) and similar retirement saving plans means that more Americans are now stakeholders in the equity market than in the past. Using a dynamic microsimulation model, this paper explores the ability of alternate future stock market scenarios to restore retirement assets. The authors find that those near retirement could fare the worst because they have no time to recoup their losses. Mid-career workers could fare better because they have more time to rebuild their wealth. They may even gain income if they buy stocks at low prices and get above-average rates of return. High-income groups will be the most affected because they are most likely to have financial assets and to be invested in the stock market.     

The impact of union-sponsored boycotts on the stock prices of target firms

An empirical analysis of the impact of union-sponsored boycotts on the stock prices of target firms strongly suggests that union boycott announcements initially lead to economically and statistically significant losses in the stock prices of the target firms. However, this short-term price decline is almost completely erased by rebounds in stock prices over the ensuing 15 trading days.     

At what price should Bordeaux wines be released?

This paper models optimal release prices of an experience good recurrently issued on markets. Using a sample of Bordeaux wines, we find that using a minimal number of intrinsic and extrinsic attributes is sufficient to explain a large proportion of release prices. We further observe a significant relationship between primary market prices and secondary market prices and general economic conditions. Release prices can deviate from secondary market prices in the short run but remain aligned over the long run. Finally, an out-of-sample analysis indicates that short-run mispricing directly affects the purchase behavior of customers.