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Financial Integration, Portfolio Selection, and Investment

Financial Integration, Portfolio Selection, and Investment. J. Kimball Dietrich University of Southern California Session 2 – August 27, 2007. Session 2 -- Overview and Themes. Borja-Goyeau (BG), “International Liquidity, Monetary Spillovers, and Asset Prices”

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Financial Integration, Portfolio Selection, and Investment

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  1. Financial Integration, Portfolio Selection, and Investment J. Kimball Dietrich University of Southern California Session 2 – August 27, 2007

  2. Session 2 -- Overview and Themes • Borja-Goyeau (BG), “International Liquidity, Monetary Spillovers, and Asset Prices” • Dupont-Goyeau-Sarte (DGS), “World Business Cycle, Local Specialization and Asset Prices” • Bautista-Maveyraud-Tricoire (BM), “Saving Investment, Financial Crisis, and Structural Changes in East Asian Economies” • Bautista-Goyeau-Yu (BGY), “Regime Switching Market Risk: Evidence from the Philippines”

  3. Overview • All four papers are empirical • They are all sophisticated analyses and provide a thorough economic literature context • The first three analyze regions or countries in relation to other regions or countries, looking for global effects on Asian economies

  4. Overview: Comparison

  5. Themes • All four papers repeat prior analysis to the Asian contect • Original work substantial • BG => Baks-Kramer (1999) IMF WP • DPG => Harding-Pagan (2002, 2006) • BM=> Feldstein-Harioka (1980) + Hamilton (1989) • BGY=> CAPM + Hamilton (1989)

  6. Themes • What do we learn? • In the three macroeconomic analyses, there are econometrically detectable feedbacks from region to region, or relations between cycles in different countries, or departures from savings-investment in single economies • Risk assessments change • Connection to portfolio choice and relation of capital flows to cycles, etc., are not clear

  7. Suggested Implications • Small countries are embedded in a larger world, for example no studies include China or Japan • Short data series on quarterly data or relatively small number of observations on annual data do not allow high resolution of results for emerging-market studies • A rich arena for significant measures of financial market integration is to be found in high-frequency data from financial markets

  8. Context for Analysis • Recent “sub-prime” mortgage crisis illustrates the fundamental truth that markets are integrated • Crises are the usual focus of policy-relevant research and analysis • Both current crisis and those of the 1990’s illustrate the importance of sectoral imbalances (i.e. the balance-sheet approach)

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