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DESAUTELS
FACULTY OF MANAGEMENT DOCTORAL
PROGRAM IN MANAGEMENT THESIS
DEFENSE Ms.
Ines
CHAIEB,
a doctoral student at McGill University, will be defending her thesis entitled: ESSAYS
ON INTERNATIONAL ASSET PRICING
DATE:
Friday,
June 9th, 2006
TIME:
10:15
a.m.
LOCATION:
Bronfman
647 – David Culver Boardroom
1001
Sherbrooke Street West
Chair of the student's committee:
Prof. Vihang Errunza
All
faculty members and doctoral students are cordially invited to attend. A
copy of the thesis is available for examination in the PhD Program Offices at
McGill, HEC, Concordia and UQAM. ESSAYS
ON INTERNATIONAL ASSET PRICING UNDER
SEGMENTATION AND PPP DEVIATIONS INES
CHAIEB Abstract This
dissertation comprises two essays. The first essay develops and tests a
theoretical model that provides new insights when markets are partially
segmented and the purchasing power parity (PPP) is violated which seems to be
the case for the majority of national markets. The theoretical part derives
closed form solutions for asset prices and portfolio holdings. Particularly, we
show that deviations from PPP in mildly segmented markets induce a new form of
systematic risk, termed segflation risk, and in equilibrium investors require
compensation for this risk. A strong feature of the model is that it provides a
theoretical framework for joint test of important issues, such as, pricing of
foreign exchange risk and world market structure. The model also nests several
existing international asset pricing models and thus provides a framework to
distinguish empirically between competing models. The empirical part of the
essay provides an empirical validation of the model for eight major emerging
markets. The results give support to the model and point to the importance of
the segflation risk which is statistically and economically significant. The
second essay uses our theoretical model to address the question of whether the
IFC investable indices are priced globally or locally. Indeed S&P/IFC
provides two emerging market indices: the IFC global index (IFCG) and its subset
the IFC investable index (IFCI). Since the IFCI is fully investable, both the
academic and practitioners implicitly assume that this subset of emerging
markets is priced in the global context. This is a critical assumption for
corporate finance decisions and portfolio management. Hence, this essay
investigates the pricing behavior of the IFCI index returns using a conditional
version of our model that allows for segmentation and PPP deviations. The
results suggest that local factors are important in explaining returns of the
IFC investable indices and that the return behavior of IFCI indices is similar
to that of the IFCG. |
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