What motivates investors to hold American Depositary Receipts (ADRs) rather than the underlying stock of U.S. listed foreign firms? We analyze the investment allocation decision of actively-managed emerging market mutual fund managers. Although legal provisions are typically assumed to affect ADR and its underlying domestic shares equally, investors holding ADRs may have a higher level of legal...

This paper establishes the link of microstructure and macroeconomic factors with the timevarying conditional correlation of foreign exchange and excess equity returns. By using the proposed DCC model with exogenous variables, capital flows and interest rate differentials are shown to be significant determinants of this correlation which is inclusive of the short-run variation of both asset retu...

This paper provides preliminary evidence that interest groups reduce both the level and the volatility of returns on a national stock market. These findings are robust to model specifications that include traditional growth regression “policy” variables as well as political, economic, and financial institutions variables. The estimated magnitude of the relationship between interest group activi...

We study portfolio allocation and characterize contracts issued by firms in the international financial market when investors exhibit ambiguity aversion and perceive ambiguity in assets issued in foreign locations. Increases in the variance of their risky production process cause firms to issue assets with a higher variable payment (equity). Hikes in investors’ perceived ambiguity have the oppo...

This paper examines the issues of excess volatility and excess comovement of interest rates among global bond markets. The base model of interest rate behavior is the expectations theory of the term structure. The empirical evidence presented in the paper indicates that 10-year government bond yields in five major markets—the United States, Japan, Germany, the United Kingdom and Canada—have in ...

This paper applies an established bid-ask spread decomposition model to spot foreign exchange market in order to assess the impact of European Monetary Union (EMU). Additionally, the paper presents and tests a modified decomposition model which is specifically adapted to the features of order-driven markets. The latter model provides much improved performance. Price clustering is introduced as ...

This paper quantifies the impact of changes in U.S. monetary policy on sovereign bond spreads in emerging market countries. Specifically, the paper explores empirically how country risk, as proxied by sovereign bond spreads, is influenced by U.S. monetary policy, country-specific fundamentals, and conditions in global capital markets. While country-specific fundamentals are important in explain...

The profitability of chartist trading rules on foreign exchange markets is still under debate. Since simple technical trading rules may not adequately capture the complex phenomenon of chartist trading, this paper focuses on the prominent head-and-shoulder pattern as a representative trading rule which incorporates various „technical“ ideas such as smoothed trends, trend reversal, resistance le...

I review empirical research on the relation between capital markets and financial statements. The principal sources of demand for capital markets research in accounting are fundamental analysis and valuation, tests of market efficiency, and the role of accounting numbers in contracts and the political process. The capital markets research topics of current interest to researchers include tests ...

This study examines profits and speculation in the USD/EUR trading of a bank in Germany over a four-month period. Dealing activity at the bank generates profits but speculation does not seem to contribute to this. We find that speculative positions fail to become profitable within a 30-minutes' horizon. Also, the suggestion that exchange rate volatility would foster speculative profits cannot b...