nep-ifn New Economics Papers
on International Finance
Issue of 2014‒06‒28
two papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. International Financial Market Integration, Asset Compositions and the Falling Exchange Rate Pass-Through By Buzaushina, Almira; Enders, Zeno; Hoffmann, Mathias
  2. The cross-section of stock returns in an early stock market By Ye, Qing; Turner, John D.

  1. By: Buzaushina, Almira; Enders, Zeno; Hoffmann, Mathias
    Abstract: This paper provides an explanation for the observed decline of the exchange rate pass-through into import prices by modeling the effects of financial market integration on the optimal choice of the pricing currency in the context of rigid nominal goods prices. Contrary to previous literature, the interdependence of this choice with the optimal portfolio choice of internationally traded financial assets is explicitly taken into account. In particular, price setters move towards more local-currency pricing while the debt portfolio includes more foreign assets following increased financial integration. Both predictions are in line with novel empirical evidence.
    Keywords: Exchange rate pass-through; financial integration;portfolio home bias; international price setting
    Date: 2014–06–18
  2. By: Ye, Qing; Turner, John D.
    Abstract: Using a new dataset which contains monthly data on 1,015 stocks traded on the London Stock Exchange between 1825 and 1870, we investigate the cross section of stock returns in this early capital market. Unique features of this market allow us to evaluate the veracity of several popular explanations of asset pricing behavior. Using portfolio analysis and Fama-MacBeth regressions, we find that stock characteristics such as beta, illiquidity, dividend yield, and past-year return performance are all positively correlated with stock returns. However, market capitalization and past-three-year return performance have no significant correlation with stock returns. --
    Keywords: cross-sectional stock returns,anomalies,size effect,value effect
    JEL: G12 N23
    Date: 2014

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