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B9311-13 Ph.D. Seminar in International Finance Course

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B9311-13 Ph.D. Seminar in International Finance Course Professor Robert J. Hodrick Spring Semester 2012 Uris 414 212-854-3413 [email protected] B9311-13 Ph.D. Seminar in International Finance Course Outline and Reading List The course covers current research topics in international finance. An introduction to the subject at the MBA level and additional background information can be found in Geert Bekaert and Robert J. Hodrick, (B&H), 2012, International Financial Management, 2nd Edition. Upper Saddle River, NJ: Pearson-Prentice Hall, which is available from the bookstore. The readings marked with an (*) are required. All other readings are supplementary. PDF files of the required readings will be posted on the class web site. The only requirement for the course is a paper, which will ideally lead to additional research in the area. Acceptable paper topics include a critical survey of two or three papers, the replication and extension of an empirical paper, or original theoretical or empirical research. I am on campus most weekdays, so please stop by if you have a question. I am also usually free right after class. If you would like to schedule a formal appointment, please send me an e-mail. January 25, Class 1: Foreign Exchange Markets and Interest Rate Parity B&H Chapters 2-6 *Sager, Michael J. and Mark P. Taylor, 2006, “Under the Microscope: The Structure of the Foreign Exchange Market,” International Journal of Finance and Economics 11, pp. 81- 95. *Baba, N., and F. Packer, 2009, “Interpreting Deviations from Covered Interest Parity during the Financial Market Turmoil of 2007–08,” Journal of Banking & Finance 33, 1953-1962. *Baba, N., and F. Packer, 2009, “From Turmoil to Crisis: Dislocations in the FX Swap Market Before and After the Failure of Lehman Brothers,” Journal of International Money and Finance 28, 1350-1374. Baba, N., F. Packer, and T. Nagano, 2008, “The spillover of money market turbulence to FX swap and cross currency markets.” BIS Quarterly Review, March 2008 pp73-86. McCauley, R. and P. McGuire, 2009, “Dollar Appreciation in 2008: Safe Haven, Carry Trades, Dollar Shortage, and Overhedging,” BIS Quarterly Review, December 2009. 1 Evans, Martin D.D. and Richard K. Lyons, 2006, “Understanding Order Flow,” International Journal of Finance and Economics 11, pp. 3-23. Osler, Carol L., 2006, “Macro Lessons from Microstructure,” International Journal of Finance and Economics 11, pp. 55-80. Andersen, Torben, Tim Bollerslev, Francis X. Diebold and Clara Vega, 2003, “Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange Markets,” American Economic Review, pp. 38-62. Sager, Michael J. and Mark P. Taylor, 2008, “Commercially Available Order Flow Data and Exchange Rate Movements: Caveat Emptor” Journal of Money, Credit and Banking 40, 583-625. Phylaktis, Kate, and Long Chen, 2010, “Asymmetric Information, Price Discovery, and Macroeconomic Announcements in the FX Market: Do Top Trading Banks Know More?” International Journal of Finance and Economics 15, 228-246. February 1, Class 2: Purchasing Power Parity, Real Exchange Rates, and Exchange Rate Pass-Through B&H Chapters 8-9 *Gopinath, Gita, Pierre-Olivier Gourinchas, Chang-Tai Hsieh, and Nicholas Li, 2011, “International Prices, Costs, and Markup Differences,” American Economic Review 101, 2450-86. *Nakamura, Emi and Dawit Zerom, 2010, “Accounting for Incomplete Pass-Through,” Review of Economic Studies, 77(3), 1192-1230. Nakamura, Emi and Jόn Steinsson, 2012, “Lost in Transit: Product Replacement Bias and Pricing to Market,” forthcoming American Economic Review. Broda, Christian and David Weinstein, 2008, “Understanding International Price Differences Using Barcode Data,” NBER Working Paper No. 14017. Gopinath, Gita, and Oleg Itshhoki, 2009, “Frequency of Price Adjustments and Pass-Through,” Quarterly Journal of Economics forthcoming. Gopinath, Gita, Oleg Itshhoki, and Roberto Rigobon, 2010, “Currency Choice and Exchange Rate Pass-Through,” American Economic Review 100, 304-336.. Nakamura, Emi, 2008, “Pass-Through in Retail and Wholesale,” American Economic Review, 98, 430-437 Chong, Yanping, Òscar Jordà, and Alan Taylor, 2010, “The Harrod-Balassa-Samuelson Hypothesis: Real Exchange Rates and their Long-Run Equilibrium,” International Economic Review, forthcoming. Chen, Lein Lein, and John Devereux, 2003, “What Can US City Price Data Tell Us about Purchasing Power Parity? Journal of International Money and Finance 22, 213-238. 2 Engel, Charles and John Rogers, 1996, "How Wide is the Border?" American Economic Review, 86, 1112-1125. Parsley, David and Shang-Jin Wei, 2001, “Explaining the Border Effect: The Role of Exchange Rate Variability, Shipping Costs, and Geography,” (with Shang-Jin Wei), Journal of International Economics 55, No. 1, pp. 87-106. Parsley, David and Shang-Jin Wei, 2007, “A Prism into the PPP Puzzles: The Micro-Foundations of Big Mac Real Exchange Rates,” Economic Journal 117, 1336–1356. Froot, Ken and Ken Rogoff, 1995, "Perspectives on PPP and Long-Run Real Exchange Rates," in Handbook of International Economics, vol. 3, Grossman and Rogoff (eds.), Elsevier Science Publishers. Imbs, Jean, Haroon Mumtaz, Morten O. Ravn and Hélène Rey, 2005, “PPP Strikes Back: Aggregation Bias and the Real Exchange Rate,” Quarterly Journal of Economics 120, 1- 43. Devereux, Michael and Charles Engel, 2007, “Expenditure Switching versus Real Exchange Rate Stabilization: Competing Objectives for Exchange Rate Policy,” Journal of Monetary Economics 54, pp. 2346-2374. Kim, Jaebeom, Masao Ogaki, and Minseok Yang, 2007, “Structural Error Correction Models: A System Method for Linear Rational Expectations Models and an Application to an Exchange Rate Model,” Journal of Money, Credit and Banking 39, pp. 2057-2075. Dornbusch, Rudiger, 1987, “Exchange Rates and Prices,” American Economic Review 77, 93- 106. February 8, Class 3: Speculation and the Forward Market: The Unbiasedness Hypothesis and the Carry Trade B&H Chapter 7 *Ang, Andrew and Joseph Chen, 2010, “Yield Curve Predictors of Foreign Exchange Returns,” manuscript, Columbia Business School. *Jordà, Òscar and Alan Taylor, 2009, “The Carry Trade and Fundamentals: Nothing to Fear but FEER Itself” NBER Working Paper 15518. Bilson, John F. O., 1981, “The Speculative Efficiency Hypothesis,” Journal of Business 54, 435- 451. Fama, Eugene, 1984, “Forward and Spot Exchange Rates,” Journal of Monetary Economics, pp. 319-338. Berge, Travis, Òscar Jordà, and Alan Taylor, 2010, “Currency Carry Trades,” International Seminar on Macroeconomics 2010, NBER, forthcoming. Hodrick, Robert J., and Lars Peter Hansen, 1980, “Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis,” Journal of Political Economy 88, 829-853. 3 Hodrick, Robert J., and Sanjay Srivastava, 1987, “Foreign Currency Futures,” Journal of International Economics 22, 1-24. Bekaert, Geert and Robert J. Hodrick, 1993, "On Biases in the Measurement of Foreign Exchange Risk Premiums," Journal of International Money and Finance 12, pp. 115-138. Bekaert, Geert and Robert J. Hodrick, 2001, “Expectations Hypotheses Tests,” Journal of Finance 56, pp. 1357-1394. Cornell, Bradford, 1989, "The Impact of Data Errors on Measurement of the Foreign Exchange Risk Premium," Journal of International Money and Finance 8, pp.147-157. Froot, Kenneth, and Richard Thaler, 1990, “Anomalies: Foreign Exchange,” Journal of Economic Perspectives 4, 179-192. Bossaerts, Peter and Pierre Hillion, 1991, "Market Microstructure Effects of Government Intervention in the Foreign Exchange Market," Review of Financial Studies 4, No. 3, pp. 513-541. Mark, Nelson and Young-Kyu Moh, 2007, “Official Intervention and the Forward Premium Anomaly,” Journal of Empirical Finance, 14, 499-522. Sercu, Piet. and Martina Vandebroek, 2005, “What UIP Tests on Extreme Samples Reveal about the Missing Variable,” Journal of International Money and Finance 24, 8, 1237-1260. Clarida, Richard H., and Mark P. Taylor, 1997, “The Term Structure of Forward Exchange Premia and the Forecastability of Spot Exchange Rates: Correcting the Errors” Review of Economics and Statistics 353-361. Clarida, Richard H., Lucio Sarno, Mark P. Taylor, and Giorgio Valente, 2003, “The Out- of-Sample Success of Term Structure Models as Exchange Rate Predictors: A Step Beyond,” Journal of International Economics 60, 61-83. Frankel, Jeffrey and Jumana Poonawala, 2010, “The Forward Market in Emerging Currencies: Less Biased Than in Major Currencies,” Journal of International Money and Finance 29, 585-598. Frankel, Jeffrey A. and Kenneth A. Froot, 1987, “Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations,” American Economic Review 77, 33-153. Froot, Kenneth A. and Jeffrey A. Frankel, 1989, “Forward Discount Bias: Is it an Exchange Risk Premium?” Quarterly Journal of Economics 104, 139-161. Bansal, Ravi and Magnus Dahlquist, 2000, “The Forward Premium Puzzle: Different Takes from Developed and Emerging Economies,” Journal of International Economics 51, pp. 115- 144. Bekaert, Geert, Min Wei and Yuhang Xing, 2007, “Uncovered Interest Rate Parity and the Term Structure,” Journal of International Money and Finance 26, 1038-1069. 4 Boudoukh, Jacob, Matthew Richardson and Robert Whitelaw, 2006, “The Information in Long- Maturity Forward Rates: Implications for Exchange Rates and the Forward Premium Anomaly,” NYU Stern Working Paper. Della Corte, Pasquale, Lucio Sarno, and Ilias Tsiakas, 2010, “Spot and Forward Volatility in Foreign Exchange,” Journal of Financial Economics, forthcoming. Pojarliev, Momtchil, and
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