Quarterly Publication of Multinational Finance Society • ISSN
1096-1879
Volume 2 Number 2 June 1998
Regulation of Financial Markets: A Focused Approach
(Multinational Finance Journal, 1998, vol. 2, no. 2, pp. 87–99)
Hans R. Stoll
Vanderbilt University, U.S.A.
A new approach and a new mind-set are needed for the regulation of financial
markets. Under our existing trajectory, regulation will become inefficient,
unwieldy, and too costly as it attempts to deal with an ever–more complex financial
system. Regulators ought to focus on what needs to be regulated, not simply
on expanding regulatory oversight. Implicit in this mind-set is the idea that
not everything must be regulated. A focused approach to regulation would separate
what is regulated from what is not. Examples of how regulation can be more narrowly
focused are given for banking, for securities markets, and for futures markets
(JEL G18, G28, G38).
Keywords: bank regulation, financial regulation, offshore offerings,
Security and Exchange Commission.
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Regime-Switching in Emerging Stock Market Returns
(Multinational Finance Journal, 1998, vol. 2, no. 2, pp. 101–132)
Kodjovi G. Assoe
Ecole des Hautes Etudes Commerciales, Canada
Many emerging markets have experienced significant changes in government policies
and capital market reforms. These changes may lead to changes in their return-generating
processes. Based on Markov-switching models, this paper investigates whether
there is more than one regime in the return-generating processes of nine emerging
markets and the specific characteristics of each regime. The results show very
strong evidence of regime-switching behavior in emerging stock market returns.
The two regimes through which emerging markets evolve are different whether
one takes the domestic investors' perspective or that of foreign investors.
For foreign investors, changes in volatility seem to be the main characteristic
of emerging market regimes. The implications of these findings for the stability
of emerging stock markets are discussed (JEL F21, F30, G12, G15).
Keywords: emerging markets, regime-switching, international investment.
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version)
Efficiency of Price Discovery in Thinly Traded Stocks:
Evidence from Dual Listings in Tel Aviv and the OTC
(Multinational Finance Journal, 1998, vol. 2, no. 2, pp. 133–149)
Shmuel Hauser
Ben Gurion Univ. of the Negeve and Israel Securities Authority, Israel
Azriel Levy
Bank of Israel and the Hebrew University, Israel
The increasing popularity of non-dealer security markets that offer automated,
computer-based, continuous trading reflects the conventional wisdom that such
markets are more efficient for all issues, large and small. This article uses
a recent testing methodology to estimate the relative efficiency of discrete
versus continuous trading regimes in the price discovery of thinly traded stocks.
The empirical tests use over 9,000 transactions of dually listed stocks traded
discretely on the Tel Aviv Stock Stock Exchange and continuously in the Over-The-Counter
market in the U.S. It is shown that stock prices over-react to the arrival of
new information and noise trading in both markets, but more so under continuous
trading in the OTC market. It is also shown that continuous trading generates
larger pricing errors and related return volatility. These findings suggest
that a switch of thinly traded securities from discrete to continuous trading
may lower the efficiency of price discovery and raise return volatility (JEL
G14, G15).
Keywords: continuous trading, discrete trading, pricing efficiency, Tel
Aviv Stock Exchange, trading mechanism.
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version)
Testing of the Positive-Multinational Network Hypothesis:
Wealth Effects of International Joint Ventures in Emerging Markets
(Multinational Finance Journal, 1998, vol. 2, no. 2, pp. 151–165)
Larry J. Prather
East Tennessee State University, U.S.A.
Jae Hoon Min
Seowon University, Korea
This article examines announcement effects of 240 international joint ventures
undertaken by firms to ascertain their impact on shareholders' wealth. The positive-multinational-network
hypothesis suggests that the market reaction should be related to the option
value of the venture. To test the positive-multinational-network hypothesis,
first the market reaction between ventures into developed and less-developed
countries are contrasted. Then, the reaction between ventures that form the
basis for initial operations in a country and subsequent operations are contrasted.
Results indicate that venture-specific characteristics influence announcement
effects and that the positive-multinational-network hypothesis is supported
(JEL G14, G31, G34).
Keywords: event studies, information and market efficiency, investment
policy, joint ventures.
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version)