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Financial Asset Integration

Financial Asset Integration. Andrew K. Rose and Robert P. Flood All materials (data sets, programs, papers, slides) at: http://faculty.haas.berkeley.edu/arose. Derive new methodology to assess integration of assets across instruments/borders/markets, etc. Illustrate technique empirically.

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Financial Asset Integration

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  1. Financial Asset Integration Andrew K. Rose and Robert P. Flood All materials (data sets, programs, papers, slides) at: http://faculty.haas.berkeley.edu/arose

  2. Derive new methodology to assess integration of assets across instruments/borders/markets, etc. Illustrate technique empirically Two Objectives:

  3. Definition of Asset Integration

  4. Key:

  5. Empirical Strategy

  6. Impose Two (Reasonable?) Assumptions for Estimation:

  7. Now We Have an Estimable Panel Equation:

  8. Why this Strategy?

  9. Are Assumptions Reasonable?

  10. Strengths of Methodology

  11. Differences with Literature

  12. Most Importantly, don’t impose bond market integration

  13. Illustration #1: American Equity Data

  14. Notes

  15. Data Characteristics

  16. Shadow Discount Rates

  17. Likelihood-Ratio (Joint) Test for Asset Integration

  18. Broadening the Sample

  19. Add Different Asset Classes

  20. NASDAQ is usually (not always) integrated

  21. More Interesting: NASDAQ is never integrated with the S&P

  22. Sensitivity Analysis

  23. In fact, Time-Varying Factors Make Little Difference!

  24. Illustration #2: Tokyo Stock Exchange

  25. Explore Importance of Grouping

  26. Shadow Discount Rates

  27. Likelihood-Ratio (Joint) Test for Asset Integration

  28. TSE is not always integrated!

  29. Sensitivity Analysis

  30. Illustration #3: NYSE during the LTCM Crisis

  31. Portfolios

  32. Shadow Discount Rates

  33. Likelihood-Ratio (Joint) Test for Asset Integration

  34. NYSE is not integrated after LTCM/Russia Crisis

  35. Illustration #4: The Asian Crisis of 1997

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