Price discovery and volatility spillovers in index futures markets: Some evidence from Mexico

This paper investigates the hypotheses that the recently established Mexican stock index futures market effectively serves the price discovery function, and that the introduction of futures trading has provoked volatility in the underlying spot market. We test both hypotheses simultaneously with daily data from Mexico in the context of a modified EGARCH model that also incorporates possible cointegration between the futures and spot markets. The evidence supports both hypotheses, suggesting that the futures market in Mexico is a useful price discovery vehicle, although futures trading has also been a source of instability for the spot market. Several managerial implications are derived and discussed. (C) 2004 Elsevier B.V. All rights reserved.

Consumption habit and international stock returns

We use the consumption-based asset pricing model with habit formation to study the predictability and cross-section of returns from the international equity markets. We find that the predictability of returns from many developed countries' equity markets is explained in part by changing prices of risks associated with consumption relative to habit at the world as well as local levels. We also provide an exploratory investigation of the cross-sectional implications of the model under the complete world market integration hypothesis and find that the model performs mildly better than the traditional consumption-based model. the unconditional and conditional world CAPMs and a three-factor international asset pricing model. (C) 2004 Elsevier B.V. All rights reserved.

Output price subsidies in a stochastic world

This article studies the comparative statics of output subsidies for firms, with monotonic preferences over costs and returns, that face price and production uncertainty. The modeling of deficiency payments, support-price schemes, and stochastic supply shifts in a state-space framework is discussed. It is shown how these notions can be used, via a simple application of Shephard's lemma, to analyze input-demand shifts once comparative-static results for supply are available. A range of comparative-static results for supply are then developed and discussed.

The oil shock of 2005

During the course of 2005, the price of crude oil reached unprecedented high levels, at least in nominal terms. Australian motorists have become used to paying more than a dollar a litre for petrol. Given the past volatility in oil prices, often described in terms of a series of oil ‘shocks’ (the large price increases in 1973, 1979 and 1999), several questions arise. First, will current high prices persist, or will prices decline substantially as occurred after previous oil shocks? Second, is the current shortage of oil a temporary phenomenon, caused by inadequate investment in oil exploration, drilling and refining capacity, or is it a signal that the supply of oil available to the world has peaked? Third, will high oil prices lead to broader economic disruption, as is commonly supposed to have happened after previous shocks? Fourth, how painful will an adjustment to lower use of oil be? Finally, how does all this relate to our efforts to deal with the problem of climate change? This article is an effort to answer some of these questions in the light of the knowledge available to us.