Quarterly Publication of Multinational Finance Society • ISSN 1096-1879

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.

Click here to download the full article (pdf version)


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.

Click here to download the full article (pdf 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.

Click here to download the full article (pdf 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.

Click here to download the full article (pdf version)