Quarterly Publication of Multinational Finance Society • ISSN 1096-1879

Equity Risk Factors for a Small Open Economy: A Risk Management Perspective
(Multinational Finance Journal, 2001, vol. 5, no. 4, pp. 225-257)

Hossein Asgharian
Lund University, Sweden
Björn Hansson
Lund University, Sweden

This article seeks to find factors that can account for the determinants of common variations in returns for a small open economy where the Swedish stock market serves as an example. The importance of the candidate factors is first analyzed by looking at the standard deviation of their mimicking portfolio returns, while their performance is evaluated from a risk management viewpoint. The results of the volatility analysis verify that the market, as represented by both the world market portfolio and the Swedish home market portfolio, is a crucial factor and most of the macro factors seem to be redundant. The results of the risk management exercise show that the market factor and the portfolios mimicking size and book-to-market ratio are important (JEL G310).

Keywords: multifactor models, open economy, return covariance, risk management.

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Financial Integration of Emerging Markets: An Analysis of Latin America Versus South Asia Using Individual Stocks
(Multinational Finance Journal, 2001, vol. 5, no. 4, pp. 259-301)

Cathy S. Goldberg
University of San Francisco, U.S.A.
Francisco A. Delgado
UBS Warburg, U.S.A.

This article presents an analysis of financial integration for emerging financial markets. The results indicate that for the sample of countries examined, Argentina, Chile, Mexico and Thailand’s stock markets are financially integrated. Conclusions are reached by first identifying endogeonous breaks in multiple stock return series and then constructing confidence intervals around these break dates. Further support is provided that identified breaks are due to integration by performing statistical analyses on the return series pre and post break. In general, the stocks in integrated countries become more correlated with world and industry indexes. Mean returns for these stocks decrease and become more aligned with the mean returns of their respective industry indexes. In cases where we do not find supporting evidence for financial integration, the break dates correspond to currency crises or other events that caused a shift in the return series (JEL G15, G12).

Keywords: emerging markets, financial integration, structural break tests.

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