Private Information, Human Capital, and Optimal “Home Bias” in Financial Markets By allowing for imperfectly informed markets and the role of private information, we offer new insights about observed deviations of portfolio concentrations in domestic relative to foreign risky assets, or “home bias”, from what standard finance models predict. Our model ascribes the “bias” to endogenous informati...

In this paper we investigate macroeconomic dynamics in the presence of frictions in both labor and credit markets. On the basis of the macroeconomic model in Merz (1995) with labor market frictions and capital accumulation, our paper offers an extension to frictions in credit markets which, analogously, are modeled as a search-and-matching process. Using the Merz model as limit case, we conside...

Financial contagion and Sudden Stops of capital inflows experienced in emerging-markets crises may originate in an explosive mix of lack of policy credibility and world capital market imperfections that afflict emerging economies with national currencies. Hence, this paper argues that abandoning national currencies to adopt a hard currency can significantly reduce the emerging countries’ vulner...

The ability of foreign firms to bring in additional capital to a host country together with technological and skill spillovers may relieve domestic firms of their financial constraints. Yet, some foreign firms borrow more from the local capital markets than the amount of capital they bring in, worsening the financial constraints of the domestic firms. We use a panel of 182 Ghanaian manufacturin...

Using a database of more than 8,000 companies from 35 countries, we find that the value of corporate diversification is related to the level of capital market development, integration, and legal systems. Among high-income countries, where capital markets are well developed and integrated, we find a significant diversification discount. By contrast, for the lower income and segmented countries, ...

INTRODUCTION Moral desires are embodied in markets. This article analyzes the implications for corporate governance of the existence of morality within consumer and capital markets. Analysis of the role of moral desires within markets represents a new way of looking at the long-standing debate concerning the social responsibility of corporations. The focus of this article is normative, that is,...

Many emerging market companies expand beyond their home markets to diversify cash flows, hit growth targets, achieve economies of scale, or access global capital markets. Despite compelling reasons to expand abroad, the process of globalization remains difficult and fraught with risk. As they expand beyond their home markets, emerging market companies must woo customers with different preferenc...

Asatisfactory pace of economic growth in any economy is contingent upon availability of adequate capital. A well-developed securities market, while acting as a provider of funding for economic activity at the macro level, plays specific roles in an economy: it diffuses stress on the banking sector by diversifying credit risk across the economy, supplies funds for long-term investment needs of t...

Three post-1980 developments have instilled in many observers a feeling that all is not quite right with the world financial system: the international debt problem of many developing countries, the large U.S. current account deficit and the corresponding cumulation of foreign indebtedness, and the heightened volatility of exchange rates and other asset prices in world financial markets. To what...