Knowledge that Transforms

As an integral part of financial globalization,the globalization of capital flows is influenced by business cycle and trade factors,international interest rate adjustments,capital account management policies,the development of the international monetary system,as well as other factors such as the policy intentions of multinational corporations and relevant international organizations.And it results from the combination of the objective certainties of historical development and the man made driving forces by relevant countries or organizationsThe globalization development process of capital flows is characterized with unprecedented complexity,while the distribution of its benefits is possessed of obvious inequality.However,the complexity and inequality will not influence the objective sustainability of capital globalization development.

Using cross‐sectional data from the SCF and Tax Model, we show that entrepreneurial income risk has a significant influence on portfolio choice and asset prices. We find that households with high and variable business income hold less wealth in stocks than other similarly wealthy households, although they constitute a significant fraction of the stockholding population. Similarly for nonentrepreneurs, holding stock in the firm where one works reduces the portfolio share of other common stocks. Finally, we show that adding proprietary income to a linear asset pricing model improves its performance over a similar model that includes only wage income.

We test whether bond ratings contain pricing‐relevant information by examining security price reactions to Moody's refinement of its rating system, which was not accompanied by any fundamental change in issuers' risks, was not preceded by any announcement, and was carried simultaneously for all bonds. We find that rating information does not affect firm value, but that debt value increases (decreases) and equity value falls (rises) when Moody's announces better‐ (worse‐) than‐expected ratings. We also find that when Moody's announces better‐ (worse‐) than‐expected ratings, the volatilities implied by prices of options on the fine‐rated issuers' shares decline (rise).