tailieunhanh - Emerging Market Liberalization and the Impact on Uncovered Interest Rate Parity

Austro-Hungarian Empire, these Central European countries form a compact group with strong cultural and historical links, except for the fact that Austria does not share a communist history as a Soviet satellite like the other four do. As a result, there are important similarities in consumption habits and needs, 5 in views about the role of money, and in the ultimate behavior of bank clients in relation to banks. To summarize, the time span along with the differences in development help identify the effects of the variables in our model, and the similarities make it easier to compare fee levels across. | Emerging Market Liberalization and the Impact on Uncovered Interest Rate Parity Bill Francis Iftekhar Hasan and Delroy Hunter Working Paper 2002-16 August 2002 Working Paper Series Federal Reserve Bank of Atlanta Working Paper 2002-16 August 2002 Emerging Market Liberalization and the Impact on Uncovered Interest Rate Parity Bill Francis University of South Florida Iftekhar Hasan Rennselaer Polytechnic Institute and Federal Reserve Bank of Atlanta Visiting Scholar Delroy Hunter University of South Florida Abstract In this paper we make use of the uncovered interest rate parity UIRP relationship to examine the extent that the liberalization of emerging financial markets has resulted in the integration of developing countries currency markets into the international capital market. Previous tests of the impact of liberalization on the integration of emerging markets capital markets into world financial markets are confined to equity markets ignoring currency markets that arguably are more important in determining the success of financial liberalization. We find that in general deviation from UIRP in the emerging markets is systematic in nature and that a significant part of emerging market currency excess returns is attributable to time-varying risk premium. Importantly we also find that these countries currency deposits provide . equity investors the benefits of international diversification. Our results also show that for some markets liberalization improved worsened investors perception of growth opportunity while reducing increasing investors perception of the probability of financial distress. Finally while several countries benefited from liberalization and have become more integrated into the world capital market the experience is country specific. JEL classification F21 F31 F36 Key words capital market integration uncovered interest rate parity UIRP financial liberalization GARCH model The authors gratefully acknowledge the Federal Reserve Bank of Atlanta .

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