Financial Integration, Portfolio Selection, and Investment

1
Financial Integration, Portfolio Selection, and
Investment

• J. Kimball Dietrich
• University of Southern California
• Session 2 August 27, 2007

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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

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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

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Overview Comparison
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Themes

• All four papers repeat prior analysis to the
  Asian contect
• Original work substantial
• BG gt Baks-Kramer (1999) IMF WP
• DPG gt Harding-Pagan (2002, 2006)
• BMgt Feldstein-Harioka (1980) Hamilton (1989)
• BGYgt CAPM Hamilton (1989)

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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

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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

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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 1990s
  illustrate the importance of sectoral imbalances
  (i.e. the balance-sheet approach)