Download Ph.D. Course in International Finance Proposed By

Ph.D. Course in International Finance
Proposed By
Vihang R. Errunza
Faculty of management, McGill University
OBJECTIVES
This is an advanced seminar with the following two objectives:
1. Students will understand and synthesize classic literature and recent advances in International
Finance.
2. Students will develop a portfolio of potential theses topics that they could further pursue if
they are so inclined.
This course will be conceptual rather than technical. It will focus exclusively on Finance issues
and not cover issues generally identified with topics in International Economics such as, Balance
of Payments, Theory of Foreign Exchange etc.
COURSE MATERIAL
I will assume that students have had prior exposure to the foundation courses in Financial
Economics and Empirical Finance as well as an MBA equivalent course in International Finance.
Students that did not have a prior course on international finance can refer to, B. Solnik and D.
McLeavey, International Investments, fifth edition, Pearson Addison Wesley, 2003.
There is no text for this course. The course materials will include a number of academic papers
listed below. Due to the time constraint, I have had to designate some of these papers as required
(R) and others as optional (O) that you may study at your convenience. The breakdown is not a
signal of quality but to maximize the learning experience.
FORMAT
In each class, students will lead the discussion and present their understanding of a set of papers
together with a summary, critique and potential research ideas for further work on the topic of
the papers. A written report including a summary, critique and potential research ideas for further
work on the topic will be expected. The rest of the class will be REQUIRED to come prepared
for substantial discussion. Thus, the seminar will involve a very high degree of student
participation with the learning directly related to the effort put in. Given the one week span of the
course from 5-9 December, it is REQUIRED that students choose one of the topics from among
the TEN in the outline and hand in their written report before 15TH NOVEMBER to the
instructor (by e-mail at [email protected]) and the other participants. Thus, each student will
be responsible for TWO REQUIRED papers from a chosen topic. The only exception will be
the first two topics where there are a total of only two required papers and hence one student will
be responsible. The allocation of topics will be on first come first served basis. Please let me
know when you choose a topic so that other participants can be appropriately notified. Although
only one student will be assigned to a topic, if there are more than 9 participants, multiple
students can be assigned to a topic with the instructor’s permission. Most of the papers are
available in print or on the Web. Let me know if you need any of the papers and I will e-mail
them to you.
GRADING
The final grade will consist of the following components:
Class Presentation - 25%
Written Report - 25%
Class Participation - 25%
Final Assignment - 25%
All student participants MUST register for credit - No auditors will be allowed. Faculty
members will be most welcome. Of course, they will be expected to fully participate in all
aspects of the course.
COURSE CONTENT
International Asset Pricing – Theory
Adler, M. and B. Dumas, 1983, International portfolio selection and corporation finance: a
synthesis, Journal of Finance, 38, 925-984. (R)
Solnik, B., 1974, An equilibrium model of the international capital market, Journal of Economic
Theory, 8, 500-524. (O)
Stulz, R.M., 1981, A model of international asset pricing, Journal of Financial Economics, 9,
383-406. (O)
International Asset Pricing - Tests
Wheatley, Simon, 1988, Some Tests of International Equity Market Integration, Journal of
Financial Economics 21, 177--213. (O)
Harvey, C. R., 1991, The world price of covariance risk, Journal of Finance , 46, 111-157. (R)
Ferson, W.E. and C. Harvey, 1993, The risk and predictability of international equity returns,
Review of Financial Studies 6, 527-566. (O)
Foreign Exchange Risk
Dumas, B. and B. Solnik, 1995, The world price of foreign exchange risk, Journal of Finance,
50, 445-479. (R)
De Santis G. and Gerard B., 1998, How big is the premium for currency risk?, Journal of
Financial Economics , 49, 375-412. (R)
Carrieri, F., V. Errunza and B. Majerbi, Does Emerging Market Exchange Risk Affect Global
Equity Prices?, Journal of Financial and Quantitative Analysis, Forthcoming (O)
International Asset Pricing Under Market Imperfections – Theory
Stulz, R. M., 1981, On the effects of barriers to international investment, Journal of Finance 36,
923-934. (R)
Errunza, V., and E. Losq, 1985, International asset pricing under mild segmentation: theory and
test, Journal of Finance 40, 105-124. (R)
Eun, Cheol, and S. Janakiramanan, 1986, A Model of International Asset Pricing with a
Constraint on the Foreign Equity Ownership, Journal of Finance 41, 897--914. (O)
International Asset Pricing Under Market Imperfections – Tests
Errunza, V., E. Losq, and P. Padmanabhan, 1992, Tests of integration, mild segmentation and
segmentation hypotheses, Journal of Banking and Finance 16, 949-972. (O)
Bekaert, G. and C. Harvey, 1995, Time-varying world market integration, Journal of Finance 50,
403-445. (R)
Carrieri, F., V. Errunza, K. Hogan, 2003, Characterizing world market integration through time,
Journal of Financial and Quantitative Analysis, Forthcoming. (R)
Dumas B., C. Harvey & P. Ruiz, 2002, Are Correlations of Stock Returns Justified by
Subsequent Changes in National Output? Forthcoming, Journal of Int’l Money & Finance
(O)
Anthony Chambet and Rajna Gibson, Financial Integration, Economic Instability and Trade
Structure in Emerging Markets, W.P., University of Zurich (O)
Correlations and International Diversification
Longin, F. and B. Solnik, 1995, Is the correlation in international equity returns constant: 19601990?, Journal of International Money and Finance 14, 3-26. (O)
Karolyi A. and R.M. Stulz, 1996, Why do markets move together? An investigation of U.S.Japan stock return comovements, Journal of Finance, 51, 951-986. (O)
De Santis G. and Gerard B. 1997, International asset pricing and portfolio diversification with
time-varying risk, Journal of Finance , 52, 1881-1912. (R)
Errunza, V., K. Hogan and M-W. Hung, 1999, Can the gains from international diversification
be achieved without trading abroad, Journal of Finance 54, 2075-2107. (R)
Geographic versus Industrial Diversification
Heston, S. and K.G. Rouwenhorst, 1994, Does industrial structure explain the benefits of
international diversification? Journal of Financial Economics 36, 3-27. (R)
Griffin, J. and G.A. Karolyi, 1998, Another look at the role of the industrial structure of markets
for international diversification strategies, Journal of Financial Economics 50, 351-373. (O)
Carrieri, F., V. Errunza and S. Sarkissian, 2003, Industry Risk and Market Integration,
Management Science, Vol. 50, February 2004, pp. 207-221.(R)
F. Carrieri, V. Errunza and S. Sarkissian, The Dynamics of Geographic versus Sectoral
Diversification: Is There a Link to the Real Economy?, W.P., McGill University (O)
Corporate International Diversification
Agmon, T., and D. Lessard, 1977, Investor recognition of corporate international diversification,
Journal of Finance 32, 1049-1055. (O)
Errunza, V., and L. Senbet, 1981, The effects of international operations on the market value of
the firm: Theory and evidence, Journal of Finance 36, 401-417. (R)
Bodnar, G., C. Tang, and J. Weintrop, 1997, Both sides of corporate diversification: The value
impacts of geographic and industrial diversification, mimeo. (O)
Denis, D., D. Denis, and K. Yost, 2002, Global Diversification, Industrial Diversification, and
Firm Value, Journal of Finance, 57, 1951-1979. (R)
Market Liberalization, C.O.C., Volatility and Correlation
Bekaert, G. and C. Harvey, 2000, Foreign speculators and emerging equity markets, Journal of
Finance 55, 565-613. (R)
Henry, P. B., 2000, Stock market liberalization, economic reform, and emerging market equity
prices, Journal of Finance 55, 529-564. (R)
Errunza, V. and D. Miller, 2000, Market segmentation and the cost of capital in international
equity markets, Journal of Financial and Quantitative Analysis, 35, 577-600. (O)
Stulz, R. M., 1999, Globalization of equity markets and the cost of capital, Working Paper, The
Ohio State University. (O)
Corporate Governance
La Porta, R., F. Lopez-De-Silanes, A. Shleifer and R. Vishny, 2000, Investor Protection and
Corporate Governance, Journal of Financial Economics, (R)
Bhattacharya U. & H. Daouk, 2002, The World Price of Insider Trading, Journal of Finance
57,75-108 (O)
Magnus Dahlquist, Lee Pinkowitz, René M. Stulz, and Rohan Williamson, 2003, Corporate
Governance and the Home Bias, Journal of Financial and Quantitative Analysis, 38 (R)
_Dyck A.& L. Zingales, 2002, Private benefits of control: An international comparison, Mimeo.
(O)
Lang,M., K. Lins & D. Miller, 2002, ADRs,analysts and accuracy: Does cross listing in the U.S.
improve a firms information environment and increase market value?, Mimeo. (O)
FRIDAY DECEMBER 9 AT 12 NOON SEMINAR BY VIHANG ERRUNZA
Emerging Markets, Country Funds and ADRs (If you are interested)
Bekaert, Geert, and Michael Urias, 1996, Diversification, integration and emerging market
closed-end funds, Journal of Finance, 51, 835-869. (O)
Bekaert, Geert and Campbell Harvey, 1997, Emerging Equity Market Volatility, Journal of
Financial Economics, 43, 29-77.(O)
Errunza, Vihang, Lemma Senbet, and Ked Hogan, 1998, The pricing of country funds from
emerging markets: Theory and evidence, International Journal of Theoretical and Applied
Finance, 1, 111-143. (O)
Foerster, Stephen R. and G. Andrew Karolyi, 1999, The effects of market segmentation and
investor recognition on asset prices: Evidence from foreign stocks listing in the U.S., Journal
of Finance, 54, 981-1013. (O)
Miller, Darius P., 1999, The market reaction to international cross-listings: Evidence from
Depositary Receipts, Journal of Financial Economics, 51, 103-123. (O)
Bekaert, Geert, Campbell Harvey and Chris Lundblad, Does Financial Liberalization Spur
Growth, Journal of Financial Economics, forthcoming. (O)