Regional Characteristics, Monetary Union and Regional Income Volatility

Relatively little attention has been paid to the issue of how individual regions will fare as a consequence of the national decision on whether or not to adopt the single European currency. Regional welfare is influenced by both mean income and volatility. The present paper focuses on volatility. We develop a model of a regionally-integrated macroeconomy to explore how the income variance implied by the national decision on EMU is distributed across a country's regions. The model suggests that weaker regions are likely to do better than stronger regions with respect to volatility if the national economy participates in EMU.Monetary Union, Regional Income, Volatility

Exploring Investor Attention in Financial Models

The purpose of this study is to investigate whether stock prices are influenced by investor attention and how this, in turn, can be used to better advise the financial decisions of the everyday investor. Using weekly adjusted close data, weekly traded volumes, and weekly company searches using Google Trends, I tested my hypothesis that including the frequency of company searches, found through consumers using Google, in financial models will help better predict stock returns. Using S&P 500 company data from February 2012 to February 2017, frequency is a better predictor of price in comparison to trading volumes. But, to maximize predictability, both frequency and volume should be used to predict price. Further investigation revealed that the Health Care and Energy sectors tend to have the strongest correlation between frequency and volume, compared to the Consumer Staples and Utilities sectors, which tend to attract individual investors

Insider trading: regulation, securities markets, and welfare under risk neutrality

I evaluate in this paper the impact of insider trading regulation (ITR) on a securities market and on social welfare. I show that ITR has both beneficial and detrimental effects on a securities market. In terms of welfare, I show that ITR has a purely redistributive effect; that is, it generates trading gains and trading losses that cancel out at the aggregate level. However, the goods and services that could have been produced with the resources allocated to enforce such a wealth redistribution are a net social cost of restricting insider trading. Finally, although I establish two conditions under which ITR is beneficial, I argue that neither condition provides sufficient support to the imposition of such a regulation

Essays on Investment Fluctuation and Market Volatility

This dissertation includes two different groups of objects in macroeconomics and financial economics. In macroeconomics, the aggregate investment fluctuation and its relation to an individual firm\u27s behavior have been extensively studied for the past three decades. Most studies on the interdependence behavior of firms\u27 investment focus on the key issue of separating a firm\u27s reaction to others\u27 behavior from reaction to common shocks. However, few researchers have addressed the issue of isolating this endogenous effect from a statistical and econometrical approach. The first essay starts with a comprehensive review of the investment fluctuation and firms\u27 interdependence behavior, followed by an econometric model of lumpy investments and an analysis of the binary choice behavior of firms\u27investments. The last part of the first essay investigates the unique characteristics of the Italian economy and discusses the economic policy implications of our research findings. We ask a similar question in the field of financial economics: Where does stock market volatility come from? The literature on the sources of such volatility is abundant. As a result of the availability of high-frequency financial data, attention has been increasingly directed at the modeling of intraday volatility of asset prices and returns. However, no empirical research of intraday volatility analysis has been applied at both a single stock level and industry level in the food industry. The second essay is aimed at filling this gap by modeling and testing intraday volatility of asset prices and returns. It starts with a modified High Frequency Multiplicative Components GARCH (Generalized Autoregressive Conditional Heteroscedasticity) model, which breaks daily volatility into three parts: daily volatility, deterministic intraday volatility, and stochastic intraday volatility. Then we apply this econometric model to a single firm as well as the whole food industry using the Trade and Quote Data and Center for Research in Security Prices data. This study finds that there is little connection between the intraday return and overnight return. There exists, however, strong evidence that the food recall announcements have negative impacts on asset returns of the associated publicly traded firms

Empirical aspects of capital flight in Kenya, 1970-2009

Working Paper No. 08/2011 - Navarra Center for International DevelopmentCapital flight remains a fundamental academic and policy issue for developing countries. During the early 1990s the debt crisis appeared to have been contained and attention to the capital flight phenomenon waned. However, capital flight still remains a serious problem for many developing countries. The outbreak of several major financial crises in the international financial system from the mid-1990s, notably in Latin America and Asia, brought renewed attention to the phenomenon of capital flight. These crises led to large outflows of capital from developing countries and the issue of capital flight regained its importance. In many developing countries capital flight constitutes an important proportion of the very resources that are critical for financing economic growth and reversing adverse economic trends (Hermes, Lensink and Murinde 2002: 1). The magnitude of capital flight from Africa has increased considerably in recent years accompanied by widespread fluctuations and volatility (Salisu 2005: 1). Despite the progress being made by some African economies towards economic and political reforms much more reform deepening is necessary to create a conducive environment for private sector participation generally and capital flight reversal. Kenya is a typical small developing economy and has experienced challenges of trying to contain capital flight.Capital flight remains a fundamental academic and policy issue for developing countries. During the early 1990s the debt crisis appeared to have been contained and attention to the capital flight phenomenon waned. However, capital flight still remains a serious problem for many developing countries. The outbreak of several major financial crises in the international financial system from the mid-1990s, notably in Latin America and Asia, brought renewed attention to the phenomenon of capital flight. These crises led to large outflows of capital from developing countries and the issue of capital flight regained its importance. In many developing countries capital flight constitutes an important proportion of the very resources that are critical for financing economic growth and reversing adverse economic trends (Hermes, Lensink and Murinde 2002: 1). The magnitude of capital flight from Africa has increased considerably in recent years accompanied by widespread fluctuations and volatility (Salisu 2005: 1). Despite the progress being made by some African economies towards economic and political reforms much more reform deepening is necessary to create a conducive environment for private sector participation generally and capital flight reversal. Kenya is a typical small developing economy and has experienced challenges of trying to contain capital flight

Insider trading: regulation, securities markets, and welfare under risk aversion

I analyze in this paper the impact of insider trading regulation (ITR) on a securities market and on social welfare. I argue below that the imposition of ITR forces a reallocation of wealth and risk that decreases social welfare. Three reasons explain this resulto First, ITR increases the volatility of securities prices, thus making the market more risky; second, it worsens the risk sharing among investors; and, third, it diverts resources from the productive sector of the economy. Further, although I formally establish conditions under which ITR makes society better off, largue that those conditions cannot be used to justify the imposition of this regulation

Operational Currency Mismatch and Firm Level Performance: Evidence from India

This paper looks at the determinants and effects of exchange rate exposure using data on 500 Indian firms over the period 1995-2011. Unlike the existing papers in the literature, we use a measure of `operational` currency exposure based on foreign currency revenues and costs of firms. Among other factors, exchange rate volatility appears as a significant determinant of average firm level exposure with the direction of relationship supporting the presence of `Moral Hazard` in firm’s risk taking behavior. Further large `operational` exposure is associated with significantly lower output growth, profitability and capital expenditure during episodes of large currency depreciation at the firm level. Together this indicates that the policy makers must take into account the incentive effects of their intervention in foreign exchange markets.