Three essays in international finance

Executive Summary The first essay of this dissertation investigates whether greater exchange rate uncertainty (i.e., variation over time in the exchange rate) fosters or depresses the foreign investment of multinational firms. In addition to the direct capital financing it supplies, foreign investment can be a source of valuable technology and know-how, which can have substantial positive effects on a host country's economic growth. Thus, it is critically important for policy makers and central bankers, among others, to understand how multinationals base their investment decisions on the characteristics of foreign exchange markets. In this essay, I first develop a theoretical framework to improve our knowledge regarding how the aggregate level of foreign investment responds to exchange rate uncertainty when an economy consists of many firms, each of which is making decisions. The analysis predicts a U-shaped effect of exchange rate uncertainty on the total level of foreign investment of the economy. That is, the effect is negative for low levels of uncertainty and positive for higher levels of uncertainty. This pattern emerges because the relationship between exchange rate volatility and 'the probability of investment is negative for firms with low productivity at home (i.e., firms that find it profitable to invest abroad) and the relationship is positive for firms with high productivity at home (i.e., firms that prefer exporting their product). This finding stands in sharp contrast to predictions in the existing literature that consider a single firm's decision to invest in a unique project. The main contribution of this research is to show that the aggregation over many firms produces a U-shaped pattern between exchange rate uncertainty and the probability of investment. Using data from industrialized countries for the period of 1982-2002, this essay offers a comprehensive empirical analysis that provides evidence in support of the theoretical prediction. In the second essay, I aim to explain the time variation in sovereign credit risk, which captures the risk that a government may be unable to repay its debt. The importance of correctly evaluating such a risk is illustrated by the central role of sovereign debt in previous international lending crises. In addition, sovereign debt is the largest asset class in emerging markets. In this essay, I provide a pricing formula for the evaluation of sovereign credit risk in which the decision to default on sovereign debt is made by the government. The pricing formula explains the variation across time in daily credit spreads - a widely used measure of credit risk - to a degree not offered by existing theoretical and empirical models. I use information on a country's stock market to compute the prevailing sovereign credit spread in that country. The pricing formula explains a substantial fraction of the time variation in daily credit spread changes for Brazil, Mexico, Peru, and Russia for the 1998-2008 period, particularly during the recent subprime crisis. I also show that when a government incentive to default is allowed to depend on current economic conditions, one can best explain the level of credit spreads, especially during the recent period of financial distress. In the third essay, I show that the risk of sovereign default abroad can produce adverse consequences for the U.S. equity market through a decrease in returns and an increase in volatility. The risk of sovereign default, which is no longer limited to emerging economies, has recently become a major concern for financial markets. While sovereign debt plays an increasing role in today's financial environment, the effects of sovereign credit risk on the U.S. financial markets have been largely ignored in the literature. In this essay, I develop a theoretical framework that explores how the risk of sovereign default abroad helps explain the level and the volatility of U.S. equity returns. The intuition for this effect is that negative economic shocks deteriorate the fiscal situation of foreign governments, thereby increasing the risk of a sovereign default that would trigger a local contraction in economic growth. The increased risk of an economic slowdown abroad amplifies the direct effect of these shocks on the level and the volatility of equity returns in the U.S. through two channels. The first channel involves a decrease in the future earnings of U.S. exporters resulting from unfavorable adjustments to the exchange rate. The second channel involves investors' incentives to rebalance their portfolios toward safer assets, which depresses U.S. equity prices. An empirical estimation of the model with monthly data for the 1994-2008 period provides evidence that the risk of sovereign default abroad generates a strong leverage effect during economic downturns, which helps to substantially explain the level and the volatility of U.S. equity returns.

Decreased local control following radiation therapy alone in early-stage glottic carcinoma with anterior commissure extension.

PURPOSE: To assess the patterns of failure in the treatment of early-stage squamous cell carcinoma of the glottic larynx. PATIENTS AND METHODS: Between 1983-2000, 122 consecutive patients treated for early laryngeal cancer (UICC T1N0 and T2N0) by radical radiation therapy (RT) were retrospectively studied. Male-to-female ratio was 106 : 16, and median age 62 years (35-92 years). There were 68 patients with T1a, 18 with T1b, and 36 with T2 tumors. Diagnosis was made by biopsy in 104 patients, and by laser vaporization or stripping in 18. Treatment planning consisted of three-dimensional (3-D) conformal RT in 49 (40%) patients including nine patients irradiated using arytenoid protection. A median dose of 70 Gy (60-74 Gy) was given (2 Gy/fraction) over a median period of 46 days (21-79 days). Median follow-up period was 85 months. RESULTS: The 5-year overall, cancer-specific, and disease-free survival amounted to 80%, 94%, and 70%, respectively. 5-year local control was 83%. Median time to local recurrence in 19 patients was 13 months (5-58 months). Salvage treatment consisted of surgery in 17 patients (one patient refused salvage and one was inoperable; total laryngectomy in eleven, and partial laryngectomy or cordectomy in six patients). Six patients died because of laryngeal cancer. Univariate analyses revealed that prognostic factors negatively influencing local control were anterior commissure extension, arytenoid protection, and total RT dose < 66 Gy. Among the factors analyzed, multivariate analysis (Cox model) demonstrated that anterior commissure extension, arytenoid protection, and male gender were the worst independent prognostic factors in terms of local control. CONCLUSION: For early-stage laryngeal cancer, outcome after RT is excellent. In case of anterior commissure extension, surgery or higher RT doses are warranted. Because of a high relapse risk, arytenoid protection should not be attempted.

How local excitation-inhibition ratio impacts the whole brain dynamics.

The spontaneous activity of the brain shows different features at different scales. On one hand, neuroimaging studies show that long-range correlations are highly structured in spatiotemporal patterns, known as resting-state networks, on the other hand, neurophysiological reports show that short-range correlations between neighboring neurons are low, despite a large amount of shared presynaptic inputs. Different dynamical mechanisms of local decorrelation have been proposed, among which is feedback inhibition. Here, we investigated the effect of locally regulating the feedback inhibition on the global dynamics of a large-scale brain model, in which the long-range connections are given by diffusion imaging data of human subjects. We used simulations and analytical methods to show that locally constraining the feedback inhibition to compensate for the excess of long-range excitatory connectivity, to preserve the asynchronous state, crucially changes the characteristics of the emergent resting and evoked activity. First, it significantly improves the model's prediction of the empirical human functional connectivity. Second, relaxing this constraint leads to an unrealistic network evoked activity, with systematic coactivation of cortical areas which are components of the default-mode network, whereas regulation of feedback inhibition prevents this. Finally, information theoretic analysis shows that regulation of the local feedback inhibition increases both the entropy and the Fisher information of the network evoked responses. Hence, it enhances the information capacity and the discrimination accuracy of the global network. In conclusion, the local excitation-inhibition ratio impacts the structure of the spontaneous activity and the information transmission at the large-scale brain level.

Effector function of human tumor-specific CD8 T cells in melanoma lesions: a state of local functional tolerance.

Although tumor-specific CD8 T-cell responses often develop in cancer patients, they rarely result in tumor eradication. We aimed at studying directly the functional efficacy of tumor-specific CD8 T cells at the site of immune attack. Tumor lesions in lymphoid and nonlymphoid tissues (metastatic lymph nodes and soft tissue/visceral metastases, respectively) were collected from stage III/IV melanoma patients and investigated for the presence and function of CD8 T cells specific for the tumor differentiation antigen Melan-A/MART-1. Comparative analysis was conducted with peripheral blood T cells. We provide evidence that in vivo-priming selects, within the available naive Melan-A/MART-1-specific CD8 T-cell repertoire, cells with high T-cell receptor avidity that can efficiently kill melanoma cells in vitro. In vivo, primed Melan-A/MART-1-specific CD8 T cells accumulate at high frequency in both lymphoid and nonlymphoid tumor lesions. Unexpectedly, however, whereas primed Melan-A/MART-1-specific CD8 T cells that circulate in the blood display robust inflammatory and cytotoxic functions, those that reside in tumor lesions (particularly in metastatic lymph nodes) are functionally tolerant. We show that both the lymph node and the tumor environments blunt T-cell effector functions and offer a rationale for the failure of tumor-specific responses to effectively counter tumor progression.

Effective exposure to solar UV in building workers: influence of local and individual factors.

Excessive exposure to solar UV light is the main cause of skin cancers in humans. UV exposure depends on environmental as well as individual factors related to activity. Although outdoor occupational activities contribute significantly to the individual dose received, data on effective exposure are scarce and limited to a few occupations. A study was undertaken in order to assess effective short-term exposure among building workers and characterize the influence of individual and local factors on exposure. The effective exposure of construction workers in a mountainous area in the southern part of Switzerland was investigated through short-term dosimetry (97 dosimeters). Three altitudes, of about 500, 1500 and 2500 m were considered. Individual measurements over 20 working periods were performed using Spore film dosimeters on five body locations. The postural activity of workers was concomitantly recorded and static UV measurements were also performed. Effective exposure among building workers was high and exceeded occupational recommendations, for all individuals for at least one body location. The mean daily UV dose in plain was 11.9 SED (0.0-31.3 SED), in middle mountain 21.4 SED (6.6-46.8 SED) and in high mountain 28.6 SED (0.0-91.1 SED). Measured doses between workers and anatomical locations exhibited a high variability, stressing the role of local exposure conditions and individual factors. Short-term effective exposure ranged between 0 and 200% of ambient irradiation, indicating the occurrence of intense, subacute exposures. A predictive irradiation model was developed to investigate the role of individual factors. Posture and orientation were found to account for at least 38% of the total variance of relative individual exposure, and were also found to account more than altitude on the total variance of effective daily exposures. Targeted sensitization actions through professional information channels and specific prevention messages are recommended. Altitude outdoor workers should also benefit from preventive medical examination.

Local delivery of glial cell line-derived neurotrophic factor improves facial nerve regeneration after late repair.

OBJECTIVES/HYPOTHESIS: Facial nerve regeneration is limited in some clinical situations: in long grafts, by aged patients, and when the delay between nerve lesion and repair is prolonged. This deficient regeneration is due to the limited number of regenerating nerve fibers, their immaturity and the unresponsiveness of Schwann cells after a long period of denervation. This study proposes to apply glial cell line-derived neurotrophic factor (GDNF) on facial nerve grafts via nerve guidance channels to improve the regeneration. METHODS: Two situations were evaluated: immediate and delayed grafts (repair 7 months after the lesion). Each group contained three subgroups: a) graft without channel, b) graft with a channel without neurotrophic factor; and c) graft with a GDNF-releasing channel. A functional analysis was performed with clinical observation of facial nerve function, and nerve conduction study at 6 weeks. Histological analysis was performed with the count of number of myelinated fibers within the graft, and distally to the graft. Central evaluation was assessed with Fluoro-Ruby retrograde labeling and Nissl staining. RESULTS: This study showed that GDNF allowed an increase in the number and the maturation of nerve fibers, as well as the number of retrogradely labeled neurons in delayed anastomoses. On the contrary, after immediate repair, the regenerated nerves in the presence of GDNF showed inferior results compared to the other groups. CONCLUSIONS: GDNF is a potent neurotrophic factor to improve facial nerve regeneration in grafts performed several months after the nerve lesion. However, GDNF should not be used for immediate repair, as it possibly inhibits the nerve regeneration.

Skin hyperemia induced by local heating : why is it blunted on repeat stimulations ?

Background: In human skin, local heating produces local vasodilatation, a response termed thermal hyperemia. Thermal hyperemia is largely mediated by nitric oxide (NO). It is blunted on repeat stimulations applied to the same skin spot, a phenomenon termed desensitization. As this phenomenon could reflect a desensitization in the vasodilator effects of NO, we investigated whether a prior exposure to exogenous NO would result in an attenuated vasodilatory response to a subsequent thermal challenge. Methods: Thirteen healthy young men were studied. Skin blood flow (SkBF) was mesured on forearm skin with laser Doppler imaging. Exposure to exogenous NO was carried out by iontophoresis of sodium nitroprusside (SNP), a donor of NO. A local thermal stimulus (temperature step from 34 to 41°C maintained for 30 minutes) was applied with temperature-controlled chambers. We tested the influence of a previous transient exposure to exogenous NO on : 1) thermal hyperemia and 2) the response to a second identical exposure to exogeneous NO. Results: Thermal hyperemia (plateau SkBF at 30 minutes minus SkBF at 34°C) obtained on a site preexposed to exogenous NO two hours before was lower than obtained on a site preexposed to iontophoretic current only (mean±SD 395±139 perfusion units [PU] vs 540±79 PU ; p<0.01). When repeated on the same skin site two hours after the first one, exposure to exogenous NO led to a blunted vasodilatory response (298±121 PU vs 394±92 PU), although this difference was not statistically significant (p≈0.09). Conclusion: In forearm human skin, prior exposure to exogenous NO partially inhibits thermal hyperemia. These data support that desensitization of thermal hyperemia depends on a downregulation of the NO-cGMP pathway, possibly downstream from the endogenous production of NO.