Latin America major player in the international financial markets, agony and ecstasy

This study deals with the complex relationship between the International Financial Markets (IFMs) and the countries of the Latin America Group, emphasizing the entrance and the exit conditions for these countries in the last two indebtedness cycles - 1967/1982 and 1990/1994. Finally, it makes some considerations about the consequences of these Latin America countries of being linking economic policies to the external financing abtained in the IFMs.

The forward- and the equity-premium puzzles: two symptoms of the same illness?

We build a pricing kernel using only US domestic assets data and check whether it accounts for foreign markets stylized facts that escape consumption based models. By interpreting our stochastic discount factor as the projection of a pricing kernel from a fully specified model in the space of returns, our results indicate that a model that accounts for the behavior of domestic assets goes a long way toward accounting for the behavior of foreign assets. We address predictability issues associated with the forward premium puzzle by: i) using instruments that are known to forecast excess returns in the moments restrictions associated with Euler equations, and; ii) by pricing Lustig and Verdelhan (2007)'s foreign currency portfolios. Our results indicate that the relevant state variables that explain foreign-currency market asset prices are also the driving forces behind U.S. domestic assets behavior.

The forward- and the equity-premium puzzles: two symptoms of the same illness?

Using information on US domestic financial data only, we build a stochastic discount factor—SDF— and check whether it accounts for foreign markets stylized facts that escape consumption based models. By interpreting our SDF as the projection of a pricing kernel from a fully specified model in the space of returns, our results indicate that a model that accounts for the behavior of domestic assets goes a long way toward accounting for the behavior of foreign assets prices. We address predictability issues associated with the forward premium puzzle by: i) using instruments that are known to forecast excess returns in the moments restrictions associated with Euler equations, and; ii) by pricing Lustig and Verdelhan (2007)’s foreign currency portfolios. Our results indicate that the relevant state variables that explain foreign-currency market asset prices are also the driving forces behind U.S. domestic assets behavior.

The forward- and the equity-premium puzzles: two symptoms of the same illness?

Using information on US domestic financial data only, we build a stochastic discount factor—SDF— and check whether it accounts for foreign markets stylized facts that escape consumption based models. By interpreting our SDF as the projection of a pricing kernel from a fully specified model in the space of returns, our results indicate that a model that accounts for the behavior of domestic assets goes a long way toward accounting for the behavior of foreign assets prices. We address predictability issues associated with the forward premium puzzle by: i) using instruments that are known to forecast excess returns in the moments restrictions associated with Euler equations, and; ii) by comparing this out-of-sample results with the one obtained performing an in-sample exercise, where the return-based SDF captures sources of risk of a representative set of developed and emerging economies government bonds. Our results indicate that the relevant state variables that explain foreign-currency market asset prices are also the driving forces behind U.S. domestic assets behavior.

Fiscal multipliers in an incomplete markets economy

This paper studies the behavior of fiscal multipliers in two different economic environments: complete markets and incomplete markets. Based on steady state analysis, output multipliers are found within a range between 0.49 and 0.66, when the markets are complete. Under incomplete markets, output multiplier was found in an interval between 0.75 and 0.94. These results indicates that the market structure, which reflects the degree of risk sharing and the intensity of the precautionary motive faced by individuals, plays a key role in determining the fiscal multipliers. In the second part of the paper, was performed an exercise to analyze the dynamic response of macroeconomic aggregates to an exogenous and unexpected rise in government spending financed by lump-sum taxes. In this case, impact output multipliers varies in a range between 0.64 and 0.68, under complete markets, and within 1.05 and 1.20 when markets are incomplete. The results found under incomplete markets are very close to that found on related literature which usually uses an econometric approach or calibrated/estimated New Keynesian models. These results shows that taking into account the deficiencies in the insurance mechanisms can be an interesting way to reconcile theoretical models with the results found on related current literature, without the need of ad-hoc assumptions relative to price stickness.

The forward and the equity-premium puzzles: a straightforward test of whether they are two symptoms of the same illness

We build a stochastic discount factor—SDF— using information on US domestic financial data only, and provide evidence that it accounts for foreign markets stylized facts that escape SDF’s generated by consumption based models. By interpreting our SDF as the projection of the pricing kernel from a fully specified model in the space of returns, our results indicate that a model that accounts for the behavior of domestic assets goes a long way toward accounting for the behavior of foreign assets prices. In our tests, we address predictability, a defining feature of the Forward Premium Puzzle—FPP— by using instruments that are known to forecast excess returns in the moments restrictions associated with Euler equations both in the equity and the foreign markets.

A note on the forward and the equity-premium puzzles: two symptoms of the same illness?

We build a stochastic discount factor—SDF— using information on US domestic financial data only, and provide evidence that it accounts for foreign markets stylized facts that escape SDF’s generated by consumption based models. By interpreting our SDF as the projection of the pricing kernel from a fully specified model in the space of returns, our results indicate that a model that accounts for the behavior of domestic assets goes a long way toward accounting for the behavior of foreign assets prices. In our tests, we address predictability, a defining feature of the Forward Premium Puzzle—FPP— by using instruments that are known to forecast excess returns in the moments restrictions associated with Euler equations both in the equity and the foreign markets.

Price discovery in dual-class shares across multiple markets

We extend the standard price discovery analysis to estimate the information share of dual-class shares across domestic and foreign markets. By examining both common and preferred shares, we aim to extract information not only about the fundamental value of the rm, but also about the dual-class premium. In particular, our interest lies on the price discovery mechanism regulating the prices of common and preferred shares in the BM&FBovespa as well as the prices of their ADR counterparts in the NYSE and in the Arca platform. However, in the presence of contemporaneous correlation between the innovations, the standard information share measure depends heavily on the ordering we attribute to prices in the system. To remain agnostic about which are the leading share class and market, one could for instance compute some weighted average information share across all possible orderings. This is extremely inconvenient given that we are dealing with 2 share prices in Brazil, 4 share prices in the US, plus the exchange rate (and hence over 5,000 permutations!). We thus develop a novel methodology to carry out price discovery analyses that does not impose any ex-ante assumption about which share class or trading platform conveys more information about shocks in the fundamental price. As such, our procedure yields a single measure of information share, which is invariant to the ordering of the variables in the system. Simulations of a simple market microstructure model show that our information share estimator works pretty well in practice. We then employ transactions data to study price discovery in two dual-class Brazilian stocks and their ADRs. We uncover two interesting ndings. First, the foreign market is at least as informative as the home market. Second, shocks in the dual-class premium entail a permanent e ect in normal times, but transitory in periods of nancial distress. We argue that the latter is consistent with the expropriation of preferred shareholders as a class.

Market coupling in the power markets

The thesis analyses the European Unions’ effort to create an integrated pan-European electricity market based on “market coupling” as the proposed allocation mechanism for interconnector transfer capacity. Thus, the thesis’ main focus is if market coupling leads to a price convergence in interlinked markets and how it affects the behavior of electricity price data. The applied research methods are a qualitative, structured literature review and a quantitative analysis of electricity price data. The quantitative analysis relies on descriptive statistics of absolute price differentials and on a Cointegration analysis according to Engle & Granger (1987)’s two step approach. Main findings are that implicit auction mechanisms such as market coupling are more efficient than explicit auctions. Especially the method of price coupling leads to a price convergence in involved markets, to social welfare gains and reduces market power of producers, as shown on the example of the TLC market coupling. The market coupling initiative between Germany and Denmark, on the other hand, is evaluated as less successful and illustrates the complexity and difficulties of implementing market coupling initiatives. The cointegration analysis shows that the time series were already before the coupling date cointegrated, but the statistical significance increased. The thesis suggests that market coupling leads to a price convergence of involved markets and thus functions as method to create a single, integrated European electricity market.

Health and development with imperfect capital markets

This paper investigates the interaction between investment in education and in life-expanding investments, in a simple two-period model in which individuaIs are liquidity constrained in the first period. We show that under low leveIs of health and capital, investments in human capital and in health are complement: since the probability of survival is small, there is littIe incentive to invest in human capital; therefore the return on health investment is also low. This reinforcing effect does not hold for higher leveIs of health or capital, and the two investments become substitute. This property has many consequences. First, subsidizing health care may have dramatically different effects on private investment in human capital, depending on the initial leveI of health and capital. Second, the assumption that mortality is endogenous induces an increase in inequality of income: since health investment is a normal good, the return on education is also lower for poor individuaIs. Third,in a non-overlapping generation madel with non-altruistic agents, the hea1th leveI of the population has strong consequences on growth. For a very low leveI of hea1th, mortality is too high for the investment on education to be profitable. For a higher, but still low, levei of hea1th the economy grows on1y if the initial stock of capital is high enough; bad health and low capital create a poverty trapo Fourth, we compare redistributive income policies versus public hea1th measures. Redistributing income reduces both static and dynamic inequality, but slows growth. In contrast, a paternalistic health policy that forces the poor to invest in hea1th reduces dynamic inequality and may foster growth.

Macroeconomic announcements, price discovery, and order flow efects in the stock market: evidence from incomplete data and multiple financial markets

This paper investigates heterogeneity in the market assessment of public macro- economic announcements by exploring (jointly) two main mechanisms through which macroeconomic news might enter stock prices: instantaneous fundamental news im- pacts consistent with the asset pricing view of symmetric information, and permanent order ow e¤ects consistent with a microstructure view of asymmetric information related to heterogeneous interpretation of public news. Theoretical motivation and empirical evidence for the operation of both mechanisms are presented. Signi cant in- stantaneous news impacts are detected for news related to real activity (including em- ployment), investment, in ation, and monetary policy; however, signi cant order ow e¤ects are also observed on employment announcement days. A multi-market analysis suggests that these asymmetric information e¤ects come from uncertainty about long term interest rates due to heterogeneous assessments of future Fed responses to em- ployment shocks.

The influence of the global crisis on the slowdown of the emerging markets

A presente dissertação investiga a relação empírica entre a crise financeira de 2007-2009, a crise da dívida soberana de 2010-2012 e a recente desaceleração dos mercados de capitais nos mercados emergentes. A exposição dos mercados emergentes à crise nos desenvolvidos é quantificada através de um modelo de interdependência de factores. Os resultados mostram que estes sofreram, de facto, um choque provocado por ambas as crises. No entanto, este foi um choque de curta duração enquanto os mercados desenvolvidos ainda lutavam com as consequências resultantes das sucessivas crises financeiras. A análise do modelo mostra ainda que após a crise da divida soberana, enquanto os mercados desenvolvidos iniciam a sua recuperação, os emergentes desaceleram o seu crescimento. De forma a completar a análise do modelo foi efectuado um estudo sobre a influência dos fluxos de capitais entre os mercados emergentes e desenvolvidos na direcção do seu crescimento, revelando que existe uma relação entre estes dois eventos.

Pricing the cost of an election: the impact of the 2014 elections on stock markets

Qual o efeito de eleições em ativos reais? É possível mensurar diretamente a diferença de preços mesmo que só possamos enxergar um dos resultados potenciais? Essa dissertação estima esses efeitos utilizando metodologia baseada em opções sobre ações. O modelo aqui desenvolvido adaptção tradicional Black-Scholes para incorporar dois novos parâmetros: um salto no preço do ativo perfeitamente antecipado e uma série de probabilidades diárias refletindo as crenças sobre quem venceria a corrida eleitoral. Aplicamos esse método para o caso brasileiro das Eleições Presidenciais de 2014 e a Petrobras - uma importante companhia do setor petrolífero do país -utilizando dados de bolsa do segundo turno das eleições. Os resultados encontrados mostram uma diferença de 65-77% para o valor da companhia, dependendo de quem vencesse nas urnas. Isso é equivalente a aproximadamente 2.5% do PIB de 2014 do país.

Time series analysis for minority game simulations of financial markets

The minority game (MG) model introduced recently provides promising insights into the understanding of the evolution of prices, indices and rates in the financial markets. In this paper we perform a time series analysis of the model employing tools from statistics, dynamical systems theory and stochastic processes. Using benchmark systems and a financial index for comparison, several conclusions are obtained about the generating mechanism for this kind of evolution. The motion is deterministic, driven by occasional random external perturbation. When the interval between two successive perturbations is sufficiently large, one can find low dimensional chaos in this regime. However, the full motion of the MG model is found to be similar to that of the first differences of the SP500 index: stochastic, nonlinear and (unit root) stationary. (C) 2002 Elsevier B.V. B.V. All rights reserved.

Economic reforms, growth and employment: labour markets in Latin America and the Caribbean

Includes bibliography