This paper examines the investment decisions of older individual investors. We find that older and experienced investors are more likely to follow rules of thumb that reflect greater investment knowledge. However, older investors are less effective in applying their investment knowledge and exhibit worse investment skill, especially if they are less educated, earn lower income, and belong to minority racial/ethnic groups. Overall, the adverse effects of aging dominate the positive effects of experience. These results indicate that older investors' portfolio decisions reflect greater knowledge about investing, but investment skill deteriorates with age due to the adverse effects of cognitive aging.

This paper investigates the impact of country-level financial integration on corporate financing choices in emerging economies. Examining 4477 public firms from 24 countries, we find that corporate leverage is positively related to credit market integration and negatively related to equity market integration. As integration proceeds to higher levels, high-growth firms seem to obtain more debt than low-growth firms; large firms seem to obtain more debt – especially long-term debt – and issue more equity than small firms. Also, there is evidence that firms are able to borrow more funds in countries with more efficient legal systems during integration process.

Does global currency volume increase on Federal Open Market Committee (FOMC) days? To test hypotheses of abnormal currency volume on FOMC days, a new data set from the Continuous Linked Settlement (CLS) Bank is used. The CLS measure captures more than half of the global trading volume in foreign exchange (FX) markets. The evidence shows that FX trading volume increases about 5% in the spot and the spot-next market following FOMC deliberations. The novelty of this result is that the aggregated CLS data controls for responses in various derivatives markets: a feature that existing studies based on intradaily data for specific trading platforms do not consider.

Some recent time series studies testing the stationarity of real exchange rates (RERs) produce conflicting results. Using nonlinear unit root tests and recursive analysis, this paper tests whether the evidence on the stationarity of RERs is sensitive to different numeraire currencies, different sample periods covering regional and global crises, and the inclusion of countries with different levels of economic or regional integration. The results indicate that evidence for a stationary RER could be substantially sensitive to sample period changes, but not so for the currencies of the countries involved in forming the euro area. We also find that financial crises have a notable impact on testing the stationarity of RERs, depending on the numeraire currency used. We discuss the policy implications of the findings.

Unscheduled stock options to target chief executive officers (CEOs) are a nontrivial phenomenon during private merger negotiations. In 920 acquisition bids during 1999–2007, over 13% of targets grant them. These options substitute for golden parachutes and compensate target CEOs for the benefits they forfeit because of the merger. Targets granting unscheduled options are more likely to be acquired but they earn lower premiums. Consequently, deal value drops by $62 for every dollar target CEOs receive from unscheduled options. Conversely, acquirers of targets offering these awards experience higher returns. Therefore, deals involving unscheduled grants exhibit a transfer of wealth from target shareholders to bidder shareholders.

Due to its distinctive institutional background, Oman offers a valuable opportunity to examine stock price reactions to dividend announcements. In Oman, (1) there are no taxes on dividends and capital gains, (2) there is a high concentration of share ownership, (3) there is low corporate transparency, and (4) firms frequently change their dividends. Our results show that announcements of dividend increases are associated with increased stock prices, while announcements of dividend decreases cause decreases in stock prices. Firms that do not change their dividends experience insignificant negative returns. These results contradict tax-based signaling models, which argue that higher taxes on dividends relative to capital gains are a necessary condition for dividends to be informative.

Das et al. (2010) develop an elegant framework where an investor selects portfolios within mental accounts but ends up holding an aggregate portfolio on the mean–variance frontier. This investor directly allocates the wealth in each account among available assets. In practice, however, investors often delegate the task of allocating wealth among assets to portfolio managers who seek to beat certain benchmarks. Accordingly, we extend their framework to the case where the investor allocates the wealth in each account among portfolio managers. Our contribution is threefold. First, we provide an analytical characterization of the existence and composition of the optimal portfolios within accounts and the aggregate portfolio. Second, we present conditions under which such portfolios are not on the mean–variance frontier, and conditions under which they are. Third, we show that the aforementioned analytical characterization is also applicable within the framework of Das et al. and thus improves upon their numerical approach.

Exponential affine models (EAMs) are factor models popular in financial asset pricing requiring a dynamic term structure, such as for interest rates and commodity futures. When implementing EAMs it is usual to first specify the model in state-space form (SSF) and then to estimate it using the Kalman filter. To specify the SSF, a structure of the measurement error must be provided which is not specified in the EAM itself. Different specifications of the measurement errors will result in different SSFs, leading to different parameter estimates. In this paper we investigate the influence of the measurement error specification on the parameter estimates. Using market data for both fixed income and commodities we provide evidence that measurement errors are cross-sectionally and serially correlated, which is not consistent with the independent identically distributed (iid) assumptions commonly adopted in the literature. Using simulated data we show that measurement error assumptions affect parameter estimates, especially in the presence of serial correlation. We provide a new specification, the augmented state-space form (ASSF), as a solution to these biases and show that the ASSF gives much better estimates than the basic SSF.

This article studies differences in the information content of 870,000 news announcements in 56 markets around the world. In most developed markets, a firm's stock price moves much more on days with public news about the firm. In contrast, in many emerging markets volatility is similar on news and non-news days. We examine several hypotheses for our findings. Cross-country differences in stock price reactions are best explained by insider trading, followed by differences in the quality of the news dissemination mechanism. Our findings are useful for quantifying the extent of insider trading and how the financial media affects international markets.

We develop a framework for studying trade in vertically and horizontally differentiated products. In our model, consumers with heterogeneous incomes and tastes purchase a homogeneous good as well as making a discrete choice of quality and variety of a differentiated product. The distribution of preferences in the population generates a nested logit demand structure. These demands are such that the fraction of consumers who buy a higher-quality product rises with income. We use the model to study the pattern of trade between countries that differ in size and income distributions but are otherwise identical. Trade―which is driven primarily by demand factors―derives from "home market effects" in the presence of transport costs. The model helps to explain why richer countries export higher-quality goods. It provides a tractable tool for studying the welfare consequences of trade, transport costs, and trade policy for different income groups in an economy.