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Abstract:
This study uses reported exports and imports figures of China-Hong Kong and China-Thailand trade to examine the relations among trade, foreign direct investment flows, and tax-induced market impediments. The empirical results, largely consistent with theoretical models, support several conclusions. First, the spurious transfer of funds to and out of China, via under-reporting exports and over-reporting imports, closely follows the preferential tax incentives such as tax breaks to foreign investors. Second, exports under-reporting is negatively related to rebates for export. Third, imports over-reporting is negatively related to import tariffs. Finally, under-reporting of exports and over-reporting of imports appear to be most common in state-owned firms.

Trade flows, foreign direct investment, round-tripping, regulatory arbitrage

Abstract:
Using daily data of four currencies (Japanese yen, euro, British pound, and Australian dollar) in terms of the U.S. dollar, and these four currencies in terms of the euro from January 2004 to February 2008, we examine the lead-lag relationship between the credit default swap (CDS) market and the currency market. Results indicate significant Granger-causality effects flowing from changes in both the North American investment-grade (IG) and high-yield (HY) CDS indices to changes in the Japanese yen, euro, and Australian dollar exchange rates in terms of the U.S. dollar for the whole period and during the credit crisis of 2007-2008. However, for the four currencies in terms of the euro, significant Granger-causality of the credit risk, measured by iTraxx Europe, is found only for the Australian dollar. Our results indicate that changes in CDS index spreads signal important carry trade information for some currencies, but not others.

Credit default Swaps, foreign exchange rates, lead-lag relationship, carry trade

Abstract:
The Merton-type structural model, when extended to sovereign issuers, suggests a negative relationship between sovereign credit default swap (CDS) spreads and stock prices. Capital structure arbitrage strategy that exploits such relationships should foster the integration of CDS and the stock market and improve price discovery. This paper studies the dynamic relationship between sovereign CDS spreads and stock prices for seven Asian countries for the period from January 2001 to February 2007. We find a strong negative correlation between the CDS spread and the stock index for most Asian countries. A long-run equilibrium price relationship is found for China, Korea, and Thailand. The limited integration in other countries may arise from market frictions and model applicability. In terms of price discovery, CDS markets play a leading role in five out of seven countries. The stock market has a feedback effect for two countries and dominates price discovery for only one country. Therefore, equity investors should span the CDS market for incremental information.

Sovereign credit default swaps, capital structure arbitrage, price discovery, feedback effect

Abstract:
This study examines the market-wide relations between the U.S. stock market and the credit default swap (CDS) market for the period of 2001-2007. Results indicate that the lead-lag relationship between the U.S. stock market and the CDS market depends on the credit quality of the underlying reference entity. Specifically, this study finds significant mutual feedback of information between the stock market and the high-yield CDS market in terms of pricing and volatility, while the stock market leads the investment-grade CDS index in the pricing process. The CDS market seems to play a more significant role in volatility spillover than the stock market. That is, volatilities of both the investment-grade and high-yield CDS indices seem to lead the stock market volatility, while the latter has a feedback effect to that of the high-yield CDS market only. Overall, the implication is that market participants should seek information in both markets when they are about to engage in trading and/or hedging.

credit default swap (CDS) index, information efficiency, price discovery

Abstract:
This paper explores the imbalance between China’s real estate market, which is booming, and the stock market, which has plunged over four years. Our empirical analysis shows that the two markets are systematically negatively related due to fund flows. The plummeting stock indexes are partly caused by the surge of property market. In the meantime, the stock composite index is found to be significant in explaining housing price movements, which are also affected by inflation rate and hot money inflows. Policy measures redirecting influx of funds from the housing market to stock markets will help structural adjustment in stock markets, which is one of nation’s key tasks.

China, Real estate market, stock market, granger-causality, financial development

Abstract:
Using a vector autoregressive (VAR) model with monthly data from 1988 through 2001, this study investigates factors that drive the excess returns on a widely followed mortgage-backed securities (MBS) index. We find that eight important economic variables (industrial productions, new home sales, bond horizon premium, bond quality premium, mortgage rate, refinancing proxy, general stock market index, and world bond market index) appear to move the excess returns on MBS. Impulse response analysis and variance decomposition further indicate a strong dynamic relationship between MBS excess returns and changes in these economic variables. Additional analysis of Freddie Mac and Fannie Mae MBS also indicates that risk of the MBS guarantor is an important determinant of the MBS return dynamics after the creation of Office of Federal Housing Enterprise Oversight (OFHEO).

mortgage-backed securities, vector autoregressive model, excess returns, and economic factors

Abstract:
We examined the performance of 115 global equity-based hedge funds with reference to their target geographical markets in the seven-year period 1994-2000. Several results are noteworthy. First, global hedge fund managers do not show positive market-timing ability but do demonstrate superior security-selection ability; the Jensen's alphas we found, before and after controlling for market timing, are sizable and positive. Second, incentive fees and leverage both have a significant positive impact on a hedge fund's risk-adjusted return (as demonstrated by Sharpe ratios and Jensen's alphas) but not on a fund's "selectivity index" (i.e., its performance after controlling for market-timing effects). Third, incentive fees can lower the hedge fund's up-market and down-market systematic risk. Fourth, the size of a hedge fund is consistently related to its return performance. Finally, contrary to the general perception, leverage does not significantly affect the systematic risk of hedge funds.

Alternative Investments: Hedge funds, Performance Measurement and evaluation: Performance measurement

Abstract:
In this study we use the latent variable asset pricing model to examine the pricing of A and B shares in the China stock markets. The hypothesis tested is whether markets for the A and the B shares of the same companies are segmented. We document only one latent variable in both A and B share markets. However, the latent risk premiums for the A and B shares are only weakly correlated, indicating the two-tier markets are loosely related. The weak correlation implies the two markets reflect different fundamental forces. Additional analysis demonstrates that the Shanghai market responds to the Shenzhen market rather than the other way around.

Abstract:
Using transaction level data, we present the first analysis of the way that foreign investors choose among different types of United States real estate. Our findings based on the conditional logit model analysis for the 1980-91 period are consistent with the hypothesis that foreign investors behave in a traditional profit maximizing, risk minimizing fashion. In choosing among investments in four major categories (apartment, office, retail and industrial) foreign investor choice is most sensitive to changes in capitalization rates, market activity and current rent levels.