Theory of foreign portfolio investment

This dissertation examines one category of international capital flows, private portfolio investments (private refers to the source of capital). There is an overall lack of a coherent and consistent definition of foreign portfolio investment. We clarify these definitional issues.^ Two main questions that pertain to private foreign portfolio investments (FPI) are explored. The first problem is the phenomenon of home preference, often referred to as home bias. Related to this are the observed cross-investment flows between countries that seem to contradict the textbook rendition of private FPI. A description of the theories purporting to resolve the home preference puzzle (and the cross-investment one) are summarized and evaluated. Most of this literature considers investors from major developed countries. I consider--as well--whether investors in less developed countries have home preference.^ The dissertation shows that home preference is indeed pervasive and profound across countries, in both developed and emerging markets. For the U.S., I examine home bias in both equity and bond holdings as well. I find that home bias is greater when we look at equity and bond holdings than equity holdings solely.^ In this dissertation a model is developed to explain home bias. This model is original and fills a gap in the literature as there have been no satisfactory models that handle at the same time both home preference and cross-border holdings in the context of information asymmetries. This model reflects what we see in the data and permits us to reach certain results by the use of comparative statics methods. The model suggests, counter-intuitively, that as the rate of return in a country relative to the world rate of return increases, home preference decreases. In the context of our relatively simple model we ascribe this result to the higher variance of the now higher return for home assets. We also find, this time as intended, that as risk aversion increases, investors diversify further so that home preference decreases.^ The second question that the dissertation deals with is the volatility of private foreign portfolio investment. Countries that are recipients of these flows have been wary of such flows because of their perceived volatility. Often the contrast is made with the perceived absence of volatility in foreign direct investment flows. I analyze the validity of these concerns using first net flow data and then gross flow data. The results show that FPI is not, in relative terms, more volatile than other flows in our sample of eight countries (half were developed countries and the rest were emerging markets).^ The implication therefore is that restricting FPI flows may be harmful in the sense that private capital may not be allocated efficiently worldwide to the detriment of capital poor economies. More to the point, any such restrictions would in fact be misguided. ^

Estimation of global systematic risk for securities listed in multiple markets

The market model is the most frequently estimated model in financial economics and has proven extremely useful in the estimation of systematic risk. In this era of rapid globalization of financial markets there has been a substantial increase in cross listings of stocks in foreign and regional capital markets. As many as a third to a half of the stocks in some major exchanges are foreign listed. The multiple listings of stocks has major implications for the estimation of systematic risk. The traditiona1 method of estimating the market model by using data from only one market will lead to misleading estimates of beta. This study demonstrates that the estimator for systematic risk and the methodology itself changes when stocks are listed in multiple markets. General expressions are developed to obtain the estimator of global beta under a variety of assumptions about the error terms of the market models for different capital markets. The assumptions pertain both to the volatilities of the abnormal returns in each market, and to the relationship between the markets. ^ Explicit expressions are derived for the estimation of global systematic risk beta when the returns are homoscedastic and also under different heteroscedastic conditions both within and/or between markets. These results for the estimation of global beta are further extended when return generating process follows an autoregressive scheme.^

An evaluation of exchange rate policy and economic adjustment in Nicaragua, 1993--1995

Since the late 1970's, but particularly since the mid-1980s, the economy of Nicaragua has had persistent and large macroeconomic imbalances, while GDP per-capita has declined to 1950s' levels. By the second half of the 1990s, huge fiscal deficits and a reduction of foreign financing resulted in record hyperinflation. The Sandinista government's (1979–1990) harsh stabilization program in 1988–89 had only modest and short-lived success. It was doomed by their inability to lower the public sector deficit due to the war, plus diminishing financial support from abroad. Hyperinflation stopped only after their 1990 electoral defeat ended the war and massive aid began to flow in. Five years later, macroeconomic stability is still very fragile. A sluggish recovery of export agriculture plus import liberalization, have impeded a reduction of huge trade and current account deficits. Facing the prospects of diminished aid flows, the government's strategy has hinged on the achievement of a real devaluation through a crawling-peg adjustment of the nominal rate. However, at the end of 1995 the situation of the external accounts was still critical, and the modest progress achieved was attributable to cyclical terms-of-trade improvement and changes in the political outlook of agricultural producers. Using a Computable General Equilibrium Model and a Social Accounting Matrix constructed for this dissertation, the importance of structural rigidities in production and demand in explaining such outcome is shown. It is shown that under the plausible structural assumptions incorporated in the model, the role of devaluation in the adjustment process is restricted by structural rigidities. Moreover, contrary to the premise of the orthodox economic thinking behind the economic program, it is the contractionary effect of devaluation more than its expenditure-switching effects that provide the basis for is use in solving the external sector's problems. A fixed nominal exchange rate is found to lead to adverse results. The broader conclusion that emerges from the study is that a new social compact and a rapid increase in infrastructure spending plus fiscal support for the traditional agro-export activities is at the center of a successful adjustment towards external viability in Nicaragua. ^

World coffee markets and national coffee parastatals since 1989: A comparative study of Colombia and Cote d'Ivoire

The International Coffee Agreements (ICA) involved the majority of nations producing and consuming coffee and provided relative economic stability to the coffee sectors of the exporting Third World countries. This study focuses on the serious impact of the 1989 collapse of the ICA on the domestic coffee sectors of Colombia and Côte d'Ivoire. In particular, the dissertation examines the role of the Colombian and Ivoirian coffee parastatals, the Federacion Nacional de Cafeteros de Colombia and the Caisse de Stabilisation et Soutien des Prix des Produits Agricoles, during the crisis and their transformation by it. ^ The theoretical framework employed in this study is borrowed from the literature on state-society relations. The methodology includes: in-depth analysis of the historical roles of the parastatal agencies in coffee production, state-society relations and economic development in Colombia and Côte d'Ivoire; interviews with parastatal administrators, producers and other knowledgeable informants in both countries; and a comprehensive review of newspaper articles and official statements of coffee policy published in Colombia and Côte d'Ivoire. prior to, during, and after the crisis. ^ The Colombian and Ivoirian coffee sectors and their producers faced serious economic and social problems following the drop in coffee prices. The coffee parastatals in Colombia and Côte d'lvoire first lost some of their responsibilities following the world coffee crisis. The Caisse was in the end eliminated while FEDECAFE struggled to remain in existence. Along the way, both entities faced protests from disgruntled coffee producers, who organized politically for the first time in their nations' histories. I argue that the outcome for the parastatals depended in part on the conditions of their formation, particularly the level of societal involvement in their creation. I also posit that the country's dependence on foreign aid played a key role in the fate of the parastatals. ^ This dissertation concludes that developments in the Colombian and Ivoirian coffee sectors have significantly contributed to the creation of the difficult political and economic conditions of both countries today. ^

Essays of strategic alliance portfolio configuration—Its performance properties, strategic antecedents and consequential effects on multinational firms' continuing foreign expansion

This dissertation focused on an increasingly prevalent phenomenon in today's global business environment—strategic alliance portfolio. Building on resource-based view, resource dependency theory and real options theory, this dissertation adopted a multi-dimensional perspective to examine the performance implications, strategic antecedents of alliance portfolio configuration, and its strategic effects on firms' decision-making on their continuing foreign expansion. The dissertation consisted of three interrelated essays, each of which dealt with a specific research question. In the first essay I applied a two-dimensional construct that embraces both alliance relations' and alliance partners' attributes to illustrate alliance portfolio configuration. Based on this framework, a longitudinal study was conducted attempting to explore the performance properties of alliance portfolio configuration. The results revealed that alliance diversity and partner diversity have different relative contributions to firms' economic performance. The relationship between alliance portfolio configuration and firm performance was shaped by degree of multinationality in a curvilinear pattern. The second essay attempted to identify the firm level driving forces of alliance portfolio configuration and how these forces interacting with firms' internationalization influence firms' strategic choices on alliance portfolio configuration. The empirical results indicated that past alliance experience, slack resource and firms' brand images are three critical determinants shaping alliance portfolios, but those shaping relationships are conditioned by firms' multinationality. The third essay primarily employed real options theory to build a conceptual framework, revealing how country-, alliance portfolio-, firm-, and industry level factors and their interactions influence firms' strategic decision-making on post-entry continuing expansion in foreign markets. The two empirical studies were resided in global hospitality and travel industries and use panel data to test the relevant theoretical models. Overall, the dissertation advanced and enriched the theoretical domain of alliance portfolio. It particularly shed valuable insights on three fundamental questions in the domain of alliance portfolio research, namely "if and how alliance portfolios contribute to firms' economic performance"; "what determines the appearance of alliance portfolios”; and "how alliance portfolios affect firms' strategic decision-making". This dissertation also extended the international business and strategic management research on service multinationals' foreign expansion and performance.

Essays on emissions trading markets

This dissertation is a collection of three economics essays on different aspects of carbon emission trading markets. The first essay analyzes the dynamic optimal emission control strategies of two nations. With a potential to become the largest buyer under the Kyoto Protocol, the US is assumed to be a monopsony, whereas with a large number of tradable permits on hand Russia is assumed to be a monopoly. Optimal costs of emission control programs are estimated for both the countries under four different market scenarios: non-cooperative no trade, US monopsony, Russia monopoly, and cooperative trading. The US monopsony scenario is found to be the most Pareto cost efficient. The Pareto efficient outcome, however, would require the US to make side payments to Russia, which will even out the differences in the cost savings from cooperative behavior. The second essay analyzes the price dynamics of the Chicago Climate Exchange (CCX), a voluntary emissions trading market. By examining the volatility in market returns using AR-GARCH and Markov switching models, the study associates the market price fluctuations with two different political regimes of the US government. Further, the study also identifies a high volatility in the returns few months before the market collapse. Three possible regulatory and market-based forces are identified as probable causes of market volatility and its ultimate collapse. Organizers of other voluntary markets in the US and worldwide may closely watch for these regime switching forces in order to overcome emission market crashes. The third essay compares excess skewness and kurtosis in carbon prices between CCX and EU ETS (European Union Emission Trading Scheme) Phase I and II markets, by examining the tail behavior when market expectations exceed the threshold level. Dynamic extreme value theory is used to find out the mean price exceedence of the threshold levels and estimate the risk loss. The calculated risk measures suggest that CCX and EU ETS Phase I are extremely immature markets for a risk investor, whereas EU ETS Phase II is a more stable market that could develop as a mature carbon market in future years.

Entrepreneur's Dilemma: Hotel Investments in Emerging Markets

Estimating the required rate of return for hotel properties is a daunting task because a lodging property is considered a hybrid between a real estate asset, and a revenue-generating enterprise affiliated with a hotel brand. Computing the expected rate of return for a hotel becomes even more complicated when a third party foreign investor/entrepreneur is the one performing the computation for an investment hotel in an emerging country. This clinical case illustrates the challenges surrounding the estimation of a project’s cost of equity in the multinational hotel industry. The results reveal that estimating cost of equity in emerging markets for hotel investments continues to be a conundrum. Future investors should make multiple adjustments and use several models when making their capital investment decisions.

The role of overseas Chinese investment in the emerging countries of Southeast and East Asia: A Confucian model of the foreign direct investment decision-making process using factors unconsidered in the West

The purpose of this study was to gain a better understanding of the foreign direct investment location decision making process through the examination of non-Western investors and their investment strategies in non-traditional markets. This was accomplished through in-depth personal interviews with 50 Overseas Chinese business owners and executives in several different industries from Hong Kong, Singapore, Taiwan, Malaysia, and Thailand about 97 separate investment projects in Southeast and East Asia, including The Philippines, Malaysia, Hong Kong, Singapore, Vietnam, India, Pakistan, South Korea, Australia, Indonesia, Cambodia, Thailand, Burma, Taiwan, and Mainland China.^ Traditional factors utilized in Western models of the foreign direct investment decision making process are reviewed, as well as literature on Asian management systems and the current state of business practices in emerging countries of Southeast and East Asia. Because of the lack of institutionalization in these markets and the strong influences of Confucian and patriarchal value systems on the Overseas Chinese, it was suspected that while some aspects of Western rational economic models of foreign direct investment are utilized, these models are insufficient in this context, and thus are not fully generalizable to the unique conditions of the Overseas Chinese business network in the region without further modification.^ Thus, other factors based on a Confucian value system need to be integrated into these models. Results from the analysis of structured interviews suggest Overseas Chinese businesses rely more heavily on their network and traditional Confucian values than rational economic factors when making their foreign direct investment location decisions in emerging countries in Asia. This effect is moderated by the firm's industry and the age of the firm's owners. ^

Three essays on market depth in futures markets

Liquidity is an important market characteristic for participants in every financial market. One of the three components of liquidity is market depth. Prior literature lacks a comprehensive analysis of depth in U.S. futures markets due to past limitations on the availability of data. However, recent innovations in data collection and dissemination provide new opportunities to investigate the depth dimension of liquidity. In this dissertation, the Chicago Mercantile Exchange (CME) Group proprietary database on depth is employed to study the dynamics of depth in the U.S. futures markets. This database allows for the analysis of depth along the entire limit order book rather than just at the first level. The first essay examines the characteristics of depth within the context of the five-deep limit order book. Results show that a large amount of depth is present in the book beyond the best level. Furthermore, the findings show that the characteristics of five-deep depth between day and night trading vary and that depth is unequal across levels within the limit order book. The second essay examines the link between the five-deep market depth and the bid-ask spread. The results suggest an inverse relation between the spread and the depth after adjusting for control factors. The third essay explores transitory volatility in relation to depth in the limit order book. Evidence supports the relation between an increase in volatility and a subsequent decrease in market depth. Overall, the results of this dissertation are consistent with limit order traders actively managing depth along the limit order book in electronic U.S. futures markets.

World coffee markets and national coffee parastatals since 1989: a comparative study of Colombia and Cote D'ivoire

The International Coffee Agreements (ICA) involved the majority of nations producing and consuming coffee and provided relative economic stability to the coffee sectors of the exporting Third World countries. This study focuses on the serious impact of the 1989 collapse of the ICA on the domestic coffee sectors of Colombia and Cote d'Ivoire. In particular, the dissertation examines the role of the Colombian and Ivoirian coffee parastatals, the Federacion Nacional de Cafeteros de Colombia and the Caisse de Stabilisation et Soutien des Prix des Produits Agricoles, during the crisis and their transformation by it. The theoretical framework employed in this study is borrowed from the literature on state-society relations. The methodology includes: in-depth analysis of the historical roles of the parastatal agencies in coffee production, state-society relations and economic development in Colombia and Côte d'Ivoire; interviews with parastatal administrators, producers and other knowledgeable informants in both countries; and a comprehensive review of newspaper articles and official statements of coffee policy published in Colombia and Côte d'Ivoire prior to, during, and after the crisis. The Colombian and Ivoirian coffee sectors and their producers faced serious economic and social problems following the drop in coffee prices. The coffee parastatals in Colombia and Côte d'Ivoire first lost some of their responsibilities following the world coffee crisis. The Caisse was in the end eliminated while FEDECAFE struggled to remain in existence. Along the way, both entities faced protests from disgruntled coffee producers, who organized politically for the first time in their nations' histories. I argue that the outcome for the parastatals depended in part on the conditions of their formation, particularly the level of societal involvement in their creation. I also posit that the country's dependence on foreign aid played a key role in the fate of the parastatals. This dissertation concludes that developments in the Colombian and Ivoirian coffee sectors have significantly contributed to the creation of the difficult political and economic conditions of both countries today.

Explaining intermittent exporting:exit and conditional re-entry in export markets

Intermittent exporting is something of a puzzle. In theory, exporting represents a major commitment, and is often the starting point for further internationalisation. However, intermittent exporters exit and subsequently re-enter exporting, sometimes frequently. We develop a conceptual model to explain how firm characteristics and market conditions interact to affect the decision to exit and re-enter exporting, and model this process using an extensive dataset of French manufacturing firms from 1997 to 2007. As anticipated, smaller and less productive firms are more likely to exit exporting, and react more strongly to changes in both domestic and foreign markets than larger firms. Exit and re-entry are closely linked. Firms with a low exit probability also have a high likelihood of re-entry, and vice versa. However, the way in which firms react to market conditions at the time of exit matters greatly in determining the likelihood of re-entry: thus re-entry depends crucially on the strategic rationale for exit. Our analysis helps explain the opportunistic and intermittent exporting of (mainly) small firms, the demand conditions under which intermittent exporting is most likely to occur, and the firm attributes most likely to give rise to such behavior.

Increased Foreign Revenue Shares in the United States Film Industry: 2000 – 2014

The American film industry, which has historically been driven by the domestic market, now receives an increasing proportion of its revenue from abroad (foreign share). To determine the factors influencing this trend, this paper analyzed data from 11 countries of 2,337 American films released during 2000 – 2014. Both film and country attributes were analyzed to determine each attribute’s effect on foreign share, whether its effect size has changed over time and whether each attribute has changed in frequency amongst films released. The results identified six attributes, star actors, sequels, releases in top markets, release time lag, GDP growth and a match in language, that contributed to the increase in foreign share over this period.

International Capital Flows and Monetary Policy Spillovers

This dissertation examines the drivers and implications of international capital flows. The overarching motivation is the observation that countries not at the centre of global financial markets are subject to considerable spillovers from centre countries, notably from their monetary policy. I present new empirical evidence on the determinants of the observed patterns of international capital flows and monetary policy spillovers, and study their effect on both financial markets and the real economy. In Chapter 2 I provide evidence on the determinants of a puzzling negative correlation observed between productivity growth and net capital inflows to developing and emerging market economies (EMEs) since 1980. By disaggregating net capital inflows into their gross components, I show that this negative correlation is explained by capital outflows related to purchases of very liquid assets from the fastest growing countries. My results suggest a desire for international portfolio diversification in liquid assets by fast growing countries is driving much of the original puzzle. In the reminder of my dissertation I pivot to study the foreign characteristics that drive international capital flows and monetary policy spillovers, with a particular focus on the role of unconventional monetary policy in the United States (U.S.). In Chapter 3 I show that a significant portion of the heterogeneity in EMEs' asset price adjustment following the quantitative easing operations by the Federal Reserve (the Fed) during 2008-2014 can be explained by the degree of bilateral capital market frictions between these countries and the U.S. This is true even after accounting for capital controls, exchange rate regimes, and domestic monetary policies. Chapter 4, co-authored with Michal Ksawery Popiel, studies unconventional monetary policy in a small open economy, looking specifically at the case of Canada since the global financial crisis. We quantify the effect Canadian unconventional monetary policy shocks had on the real economy, while carefully controlling for and quantifying spillovers from U.S. unconventional monetary policy. Our results indicate that the Bank of Canada's unconventional monetary policy increased Canadian output significantly from 2009-2010, but that spillovers from the Fed's policy were even more important for increasing Canadian output after 2008.

Commentary on Foreign Reprints Act 1847

Legislation enabling colonial territories to import unauthorised foreign reprints subject to the payment of an import duty, to be collected for the benefit of British publishers.
The commentary explores the background to the Foreign Reprints Act 1847, and in particular, the differences between the British and colonial markets for literary works, and the introduction of 'responsible government' in the colonies. It also considers the movement in the late 1860s and early 1870s, on the part of the British book trade, to have the legislation repealed, as well as the efforts of the Canadian legislature to replace the import scheme with a system of compulsory licensing, set against the backdrop of increasingly fractious Anglo-Canadian copyright relations. The Canadian demands for compulsory licensing scheme were by and large abandoned, and the 1847 Act remained on the statute books until the passing of the Copyright Act 1911.

Learning from one another: evaluating the impact of horizontal knowledge exchange for environmental management and governance

There is increasing advocacy for inclusive community-based approaches to environmental management, and growing evidence that involving communities improves the sustainability of social-ecological systems. Most community-based approaches rely on partnerships and knowledge exchange between communities, civil society organizations, and professionals such as practitioners and/or scientists. However, few models have actively integrated more horizontal knowledge exchange from community to community. We reflect on the transferability of community owned solutions between indigenous communities by exploring challenges and achievements of community peer-to-peer knowledge exchange as a way of empowering communities to face up to local environmental and social challenges. Using participatory visual methods, indigenous communities of the North Rupununi (Guyana) identified and documented their community owned solutions through films and photostories. Indigenous researchers from this community then shared their solutions with six other communities that faced similar challenges within Guyana, Suriname, Venezuela, Colombia, French Guiana, and Brazil. They were supported by in-country civil society organizations and academics. We analyzed the impact of the knowledge exchange through interviews, field reports, and observations. Our results show that indigenous community members were significantly more receptive to solutions emerging from, and communicated by, other indigenous peoples, and that this approach was a significant motivating force for galvanizing communities to make changes in their community. We identified a range of enabling factors, such as building capacity for a shared conceptual and technical understanding, that strengthens the exchange between communities and contributes to a lasting impact. With national and international policy-makers mobilizing significant financial resources for biodiversity conservation and climate change mitigation, we argue that the promotion of community owned solutions through community peer-to-peer exchange may deliver more long-lasting, socially and ecologically integrated, and investment-effective strategies compared to top-down, expert led, and/or foreign-led initiatives.