Given the rapidly evolving nature of financial globalization, this paper models and predicts financial integration in a changing world. By decomposing integration into global risk, local risk and estimation risk, we argue that greater integration is mainly driven by global factors, not...

Recent empirical studies report predictable dynamics in the volatility surfaces implied by observed index option prices, as prescribed by general equilibrium models. Using an extensive data set from the over-the-counter options market, we document similar predictability in the factors that...

Most FDI takes place between the developed countries, which suggests that the market-seeking motive is important for understanding FDI. However, given the stylized fact that trade barriers (e.g. transportation costs and financial barriers) have declined over the past 20 years, models that aim to...

We analyze the international transmission of financial stress and its effects on economic activity. We construct country specific monthly financial stress indexes (FSI) using dynamic factor models from 1970 until 2012 for 20 countries. We show that there is a strong co-movement of the FSI during...

The main purpose of this paper is to warn academia and general public about the inevitability of the impending global economic recession. Heuristically paper introduces concept of macroeconomic gambling trap within the wider context of global economic history. Macroeconomic gambling trap is then...

Recent research suggests that the power law is one of the most universal laws in nature and it also seems to work quite fine in economics and finance. In this paper we show that the power law explains extremely well the relationship between the value of broad-based market indices and their...

On September 3-4, 2009 SUERF and Utrecht University School of Economicsorganized the Colloquium "The Quest for Stability" in Utrecht, the Netherlands. The papers included in this SUERF Study are based on contributions to the Colloquium.

In this paper, we study the effectiveness of carry trade strategies during and after the financial crisis using a flexible approach to modeling currency returns. We decompose the currency returns into multiplicative sign and absolute return components, which exhibit much greater predictability...

The failure of uncovered interest rate parity to explain short-term interest rate movements is well documented. We show that short-term changes in long-term interest rates do help to explain short-term exchange rate movements. The relationship gets stronger over our sample period, as the...

We employ a wavelet approach and conduct a time-frequency analysis of dynamic correlations between pairs of key traded assets (gold, oil, and stocks) covering the period from 1987 to 2012. The analysis is performed on both intra-day and daily data. We show that heterogeneity in correlations...